Sinclair Broadcast Group [NASDAQ:SBGI] is one of the largest producers of local news, owning and providing services to 185 stations in 86 markets that collectively broadcast 640 channels. The company’s two primary revenue segments are distribution (53.6% of FY23 revenues) and advertising revenues (41%).

Following the 28 February earnings announcement SBGI’s senior secured notes due 2030 increased 1.5 points to 73 from 71.5 before earnings, and 5.5% unsecured notes due 2030 increased 3 points to a price of 73 from a previous price of 70. Revenue for 4Q23 came in at USD 826m, on the low end of guidance of USD 821m-USD 847m issued on 1 November 2023. FY23 adjusted EBITDA was USD 549m compared to a guidance range of USD 545m-USD 564m.

On 17 January, Sinclair announced a global settlement and release of all claims associated with the litigation between Sinclair and Diamond Sports Group. Sinclair will pay a total of USD 495m, and in exchange Diamond has dropped its USD 1.5bn litigation against Sinclair.

On 7 February, Bloomberg reported that SBGI has hired Moelis & Co to perform a strategic review of Tennis Channel. Tennis Channel (TC) represented USD 54m (6.5%) of 4Q23 revenues and USD 22m (12.2%) of adjusted EBITDA for the quarter. The Tennis Channel was acquired in 2016 for USD 350m from majority owners Apollo, Bain, Battery Ventures, CCM Capital and Columbia Capital. If we value the Tennis Channel at 4x 2023 adjusted EBITDA, we reach a value of USD 288m for the segment, a 17.7% discount to the 2016 purchase price.

On 27 March 2024, SBGI and its senior lenders struck a cooperative agreement led by law firm Milbank, according to Bloomberg. The cooperative agreement binds first-lien lenders to act together in negotiations after the company transferred Tennis Channel, Compulse, and its other non-broadcasting assets to Sinclair Ventures, which were previously collateral available to first-lien lenders.

Debt and liquidity

Sinclair is targeting leverage (based on L8Q adjusted EBITDA divided by two) in the range of 3.6x-4.4x. Leverage is expected to decline on record political EBITDA in 2024. In January 2024 Sinclair repurchased approximately USD 27m of principal value term loan B2 at a price of 93.

During 2023, Sinclair underwent deconsolidation into separate entities, Sinclair Broadcast Group (SBG) and Sinclair Television Group (STG) to simplify the corporate structure and improve the transparency of financial disclosures on the value drivers of the company.

During 2023, SBGI repurchased USD 30m principal of TL B-2 at a price of 87 and USD 13m of its 4.125% senior secured notes due 2030 at a price of 62. The company repurchased and cancelled USD 7m of its 5.125% due 2027 at 86 and USD 15m of its 5.5% notes due 2030 at a price of 53.

In 2023, the company repurchased approximately 8.8m class A shares for USD 153m at an average price of USD 17.42 per share compared to the current share price of USD 12.05.

4Q23 results

FY23 revenue came in at USD 3.08bn, down 1.8% from USD 3.22bn in FY21. FY23 adjusted EBITDA was USD 549m, down 27.1% from USD 753m in FY21 due to a USD 534m increase in corporate general and administrative expenses related to the corporate restructuring. 4Q23 revenues came in at USD 826m, on the low end of revenue guidance of USD 821m-USD 847m for the quarter, and up 5.2% from revenue of USD 785m in 4Q21. Adjusted EBITDA was USD 181m, down 9.5% from USD 200m in 4Q21 due primarily to an 11.7% rise in operating expenses, offset by a 13.8% increase in advertising revenue.

Distribution revenue for 4Q23 was USD 422m, down slightly from USD 425m in 4Q21. Advertising revenue was USD 363m, up 13.8% from USD 319m in 4Q21.

Company reorganization

On 3 April 2023, the company entered into a share exchange and plan of reorganization with new company Sinclair, Inc. replacing SBG as the publicly traded parent company. The company says the deconsolidation into Sinclair Broadcast Group (SBG) and Sinclair Television Group (STG) was done to simplify the corporate structure and improve the transparency of financial disclosures on the value drivers of the company. The new company has the same ticker, board of directors and management team, and the exchange had no impact on share counts and classes.

As part of the reorganization, Sinclair transferred Tennis Channel and assets with a value of USD 1.2bn at 31 Dec 2023 to  Sinclair Ventures, including USD 343m cash, its Compulse marketing businesses, its BALY equity investments, real estate, and other investments. We find the value of the Sinclair Ventures, including Tennis Channel and Compulse, to be USD 760m based on our SOTP analysis. The assets no longer serve as collateral under STG’s secured debt and are not included in STG’s adjusted EBITDA or first lien leverage.

FY24 outlook

SBIG issued its outlook for 1Q24 projecting revenues of USD 793m-USD 806m. The company is expecting record political revenues over USD 350m, weighted more heavily in the second half of 2024 due to a lack of competitive primaries and excluding an approximate USD 24m boost from the Georgia runoff in 2020.

Valuation

Using a FY24/FY25 blended adjusted EBITDA estimate of USD 689m to smooth out results for the political cycle, we find that SBGI currently trades at an EV/EBITDA multiple of 5.1x compared to the peer median multiple of 6.4x. SBGI has an NTM EV/EBITDA margin of 24% compared to the peer median of 29%. Using a NTM EV/EBITDA multiple range of 5.5x-7.5x, we find that secured and unsecured debt are fully covered at our midpoint estimate, with a midpoint equity price of USD 11.84 compared to the current equity price of USD 12.64.