Wednesday, March 2, 2022

Forbes Global Media Holdings: An Iconic, Media Growth Company

Michael Kupinski, Director of Research, Noble Capital Markets, Inc.

Refer to end of report for Analyst Certification & Disclosures

The Deal. Magnum Opus Acquisition Limited (OPA) will be merging with Forbes Global Media Holdings in a deal that will bring Forbes Media Group Holdings public. The deal, which values Forbes at an enterprise value of $630 million, net of tax benefits, will provide growth capital to expand its data mining analytics and to make content improvements.

The Target. Forbes is a leading source of business news and information that has operated for more than a century. Its brand is recognized internationally due its magazine, website, newsletters, conferences, and other businesses. The company plans to build on its iconic brand and broad reach to convert greater portions of its audience into loyal subscribers, growing recurring revenues.

The Market. Forbes has significantly increased its digital presence and appears well positioned to benefit from the growing digital market. With increasing internet connectivity, the global e-magazine market is expected to grow at 4% CAGR over the next 5 years to be a $5.4 billion market, according to Statista. Broadly, the global digital media market is expected to grow at an attractive 9% CAGR from 2019 to 2026.

The Finances. Forbes is expected to generate $211 million of revenue in 2022 and $237 million in 2023, with EBITDA margins above 25%, generating EBITDA of $53 million and $66 million, respectively. The company’s balance sheet is expected to have $145 million in cash with virtually no debt, post transaction. As a result, the company will have significant financial flexibility to invest in its digital growth strategy, enhancing its long term growth prospects.

The Valuation. Near current levels, the OPA shares trade at 12.8 times Enterprise Value to expected 2022 EBITDA and 10.3 times EV to 2023 EBITDA estimates, which is a discount to Forbes’ peer group. In addition, assuming a price target based on M&A transaction multiples, we arrive at a price target of $14.

Investment Overview

Renowned business magazine and media company, Forbes, plans to go public through a merger with Magnum Opus Acquisition Limited (NYSE: OPA), a special purpose acquisition company. The business combination is expected to be completed in the first quarter of 2022. While the company is recognized by its iconic magazine, the print magazine is a small portion of this company’s diverse revenue streams, which include forbes.com, conferences, consulting, newsletters, brand extensions and e-commerce partnerships. In fact, the company has transformed its business, with digital revenues having surpassed its print revenues in 2013. As the company looks to go public, its goal is to position for the next digital evolution by investing to improve its audience data mining operations, improve its back-end technology infrastructure to offer AI learning and data science models, and generate increased recurring, digital subscription revenue.

The transaction. The transaction values Forbes at an implied pro-forma enterprise value of $685 million, $630 million net of tax benefits. Magnum Opus will provide $200 million (currently held in trust), and PIPE investors will provide an additional $400 million. Funding of the deal is outlined in Figure #1 Merger Funding. After the deal closes, Forbes’ existing shareholders will control 21.7% of the new company, while PIPE investors and Magnum Opus (OPA) shareholders will obtain 48.2% and 24.1% ownership, respectively. The remaining 6% of equity ownership will be allotted to Magnum Opus founder shares. The new company will trade on the New York Stock Exchange under the symbol, “FRBS.”

Figure #1 Merger Funding

Source: Forbes’ Investor Presentation

The finances. After transaction fees of $15 million, the post-merger balance sheet is expected to have $145 million in cash and no debt. The company will be able to utilize its financial flexibility to pursue its digital growth initiatives. Given its strong finances, we would not rule out the prospect of acquisitions. Acquisitions are expected to focus in the consumer area, media and to expand upon its brand extensions, discussed later in this report. 

Growing market. The global e-magazine, digital media, and digital advertising markets have grown and is expected to grow significantly. The Digital demand allowed the company to shift from a print centric business model toward a robust digitally focused, omnichannel enterprise. Its plans are to take the digital transition to the next level, adding data analytics and insights, expanding back-end, technology infrastructure with machine learning and data science modeling, all to unlock future revenue growth opportunities. We believe that the favorable digital ecosystem offers a significant tailwind to the company’s growth initiatives.

An Iconic brand, growth focused company. The company has not been immune to the impact of the Covid pandemic, which adversely affected all advertising driven mediums. Revenues declined 12.2% from $210.6 million in 2019 to $184.9 million in 2020. Notably, the revenue decline was far better than many advertising mediums, which declined 20% (Broadcast TV) to as high as 40% (Radio). Adj. EBITDA declined 17% from $39.6 million in 2019 to $32.5 million in 2020. In our view, the decline in revenues and EBITDA offers a reset to the company’s compelling revenue and cash flow growth trajectory. Based on management’s forecast, revenues are expected to increase at an attractive 18% Compound Annual Growth Rate from 2020 to 2023 inclusive of its magazines and 21%, excluding magazines. Adjusted EBITDA is expected to increase at a compelling 25% plus CAGR in the comparable time frame. 

Striving for recurring revenues. Both the e-magazine and more broadly, the digital media and advertising markets provides future opportunities for the company’s key revenue growth drivers. The company’s Consumer segment, currently 38% of total company revenues, includes e-magazine revenues from Forbes’ digital subscriptions, as well as newsletter subscription revenue. Forbes plans to leverage its strong brand, as well as its valuable audience insights across the company’s diverse businesses, to improve user experience through customized content that fits the needs of the company’s key audiences. The aim of the content improvements is to strengthen brand loyalty and convert higher portions of Forbes’ audiences to paying subscribers, providing a stable. recurring revenue stream. The company will rely on key technologies to execute its strategy. These technologies include ForbesOne, the company’s in-house data analytics platform, and Bertie, the company’s publishing platform, which helps Forbes’ journalists generate meaningful content that is tailored to specific audiences. 

Valuation may offer upside. OPA (the publicly traded SPAC) currently trades near $10 per share, which implies an Enterprise Value to projected 2022 EBITDA of 12.8 times and 10.3 times EV to 2023 EBITDA. If the shares traded more in line with EV/EBITDA multiples compared with its peers, the OPA shares would trade at $14, offering 40% upside near current levels. In addition, if the shares were to trade in line with strategic transaction multiples, or intrinsic value, the shares would trade at $18. Notably, our target price would be set at 80% of private transaction multiples, which would be $14. As such, we believe that both methodologies arrive at a similar price target of $14 (80% of transaction multiples and the current peer group average). The enterprise value calculation assumes 83 million fully diluted shares outstanding and reflects its anticipated cash balance of $145 million. We believe that the key catalyst toward higher stock valuations likely will be based upon the success of the company’s subscription revenue strategy, given that stock valuations appear higher for subscription based businesses. 

Investment Highlights

• Leverage the brand: With over a hundred years of history and an internationally recognized name, Forbes possesses a competitive advantage with its established brand. Forbes currently reaches over 150 million people worldwide in 77 countries through its content across several platforms including print, digital, and brand extensions.

• Multi-channel opportunities: Modern channels and digital platforms are the main catalysts to grow audiences. By hosting content across multiple distribution channels, the company can expand traffic and escalate its global reach. For example, Forbes boasts over 81 million active users on its website, 42 million followers on social media, and 6 million print readers.

• International market expansion: The company has launched new revenue streams through publication licensing agreements in more than 70 countries, as well as through international joint venture partnerships. Publication licenses can generate up to $500K per licensee, while Forbes’ joint venture in China (Forbes China) generates a minimum of $800K in licensing fees and a 10% revenue share.

• Subscription recurring revenue: The company is taking steps to grow its digital subscription base. Forbes’ initiatives to enhance user engagement and consumer subscriptions can bring over $1,000 per ‘high value’ paying subscriber. Notably, management’s long-term target is to attract more than a million paid subscribers up from the current 23K.

• e-Magazine growth: The global e-magazine industry is set to grow at an attractive 4% CAGR over the next five years to reach a total market size of $5.4 billion. As a leader in the industry, Forbes is poised to capitalize on the growing market by improving its audience data and creating meaningful content that will enhance brand loyalty and lead to expanding revenues.

• Attractive financial flexibility: Upon completion of the deal, the pro forma balance sheet will have $145 million in cash. As such, the financial flexibility to fuel growth is a key component of Forbes’ strategy. Management believes the company is well-positioned to attract future M&A opportunities.

• Robo-Investing tailwind: After acquiring a majority stake in the robo-trading and financial advisory platform, Q.ai, for $3.5 million, in 2019, Forbes unlocked a new revenue growth driver. According to United Fintech, retail investors accounted for 23% of all US equity trading in 2021, twice as much as in 2019. Additionally, the data and insights from Q.ai technology could be useful in providing consumer insights for other segments of the company.

 

Investment Risks

• Increased competition in the digital media industry. Forbes is facing a competitive environment in the digital media space. Competitive pressures from other traditional media industries, such as Radio, Newspaper, and TV, which are pursuing aggressive digital growth strategies, could have adverse impacts on Forbes’ ability to execute its growth strategy.

• Brand recognition. Forbes’ brand is internationally recognized and one of the company’s greatest assets. Any failure to maintain the reputation of the brand while the company expands, could adversely affect the company’s revenue potential in the future.

• Negative trends in the print magazine sector. Print publishing has experienced negative growth in recent years with the rise of digital media. The company’s revenue growth could be challenged if digital revenues do not offset any potential negative trends to its print magazine revenues.

• Challenges implementing growth strategies.  The company is entering new geographical markets and expanding its brand presence on novel platforms. Such growth strategies may face unexpected headwinds in the process, possibly affecting Forbes’ revenue growth.

Industry Overview

In the early part of the twentieth century, a new form of business journalism began growing in popularity, as the magazine industry rose to prominence. Many of today’s most recognizable business and news magazine brands were established roughly a century ago: Forbes in 1917, Time in 1923, Business Week in 1929, and Newsweek in 1933. At the time that these magazines were founded, the popularity of magazines was steadily climbing in the United States. According to a report published in 1956 at the University of Illinois Press (entitled Magazines in the Twentieth Century), the combined circulation per issue of all U.S. magazines grew from 65 million in 1900 to 385 million in 1947, a compound annual growth rate of 4%. Over a similar period, magazine advertising revenue grew substantially. Gross national advertising in U.S. magazines increased from $25 million in 1915 to $622 million in 1955, a 9% compound annual growth rate.

The business magazines marketed themselves as a resource for relevant news that related to the economics of various industries. For example, a business magazine would often publish articles about a political issue through the lens of how it might affect various industries. These magazines would also give insights into economic trends, emerging businesses, successful management practices, and other features such as rankings. A couple of popular examples of featured rankings are Forbes’ list of the top 2,000 public companies, “the Global 2,000,” and BusinessWeek’s “Business School Rankings.” With a focus on all things industry, the business magazines became popular with management personnel and C-suite executives and still are today.

Figure 2 — Business Magazine Franchises

Source: Noble Capital Markets

Business magazines traditionally generated revenues in much the same way as newspaper publishers, through subscriptions and by selling advertising. With the similarities between magazines and newspapers, business magazines competed with business-focused newspapers such as the Wall Street Journal and the Investor’s Business Daily. However, the competitive landscape changed with the internet and the competition is now broader, but so too are the opportunities.

Over the subsequent two decades since 2000, many industries had to adapt to an increasingly digital world. Magazine, newspaper, radio, and TV companies all began publishing content on their websites. What used to be siloed industries found themselves competing directly with each other for digital audiences. Moreover, new companies sprung up as digital content pure-plays. All of the traditional media companies now post videos and articles on websites and mobile apps, as well as send out e-newsletters and create podcasts, among other digital content offerings. In short, what has come to be known as digital media, is essentially a super-industry in which the traditional media companies now all compete. 

There are certainly similarities between the revenue models of digital media and traditional media, as both can rely on advertising and subscription revenues. There are many ways a company can generate digital media advertising revenue including website banner ads, pop-up ads, audio ads (through digital audio content like podcasts), and video ads, among others. Companies can also enter into affiliate marketing partnerships in which they make a commission off audiences buying third-party products after following a link posted on the company’s website. There are also subscription-based revenue opportunities with digital media content. This often takes the form of a paywall, which allows only paying subscribers to access certain premium content on a website. Digital subscriptions can also be a means of monetizing content distributed as an e-newsletter. 

The dawn of social media has also had an effect on the media industry, as it allows media companies to capture larger audiences. Platforms such as Facebook, Instagram, LinkedIn, and Snapchat all have extensive reach and therefore have become marketing hot-spots. As it relates to the digital media industry, social media is essentially a competitive marketing landscape where companies attempt to build their brands and drive traffic to their websites and mobile apps. Figure #3 Social Media Spending, illustrates how social media ad spending has been and is expected to grow.

Figure #3 Social Media Spending

Source: Statista

Although there is steep competition for audiences in the digital media industry, the opportunities within the space are growing. Some of the drivers of the growth in digital media are increasing internet connectivity, faster internet speeds, and increasing numbers of mobile internet devices. These technological improvements are making digital content available to a growing number of people around the globe. As illustrated in Figure #4 Internet Connectivity, global smartphone connections were just over 3 billion in 2016 and are expected to grow to 5.5 billion by 2025. Over the next several years, internet data consumption is also expected to grow significantly, at more than 20% per year.

Figure #4 Internet Connectivity 

Source: PWC

With the ever-increasing internet connectivity around the globe, digital media revenues are expected to grow substantially in the coming years. The eMagazine industry in particular, is expected to grow at 4% CAGR from 2022 through 2026, according to Statista. By 2026, eMagazine global revenues are expected to be $5.4 billion, as illustrated in Figure #5 eMagazine Global Revenue. 

Figure #5 e-Magazine Global Revenue

Source: Statista

The growth of eMagazines is part of a larger trend of digital advertising and digital media, which is illustrated in Figure #6 Global Digital Media Market. According to researchandmarkets.com., the global digital advertising market, which includes ad revenue from mobile apps, digital TV, social media, mobile and desktop web, and others, is expected to grow at 9% CAGR from 2019 to 2026. The global digital content media market is expected to grow at 13% CAGR over the same time frame, according to PR Newswire. Digital content media includes movies, music, gaming, education, digital publication, and other forms of digital media. 

Figure #6 Global Digital Media Market

Source: Forbes Investor Presentation

The traditional media industries, including business-focused magazines, have had to adapt to an increasingly digital world. The new digital media industry, therefore, is fiercely competitive. Yet, it offers significant growth. It is incumbent upon media companies to grow digital content, establish brands, and maintain audience loyalty through the digital transformation. The media companies that are able to accomplish this are likely to be best positioned to capture favorable portions of the growing digital market.

Company Overview

Forbes Media Group, headquartered in New Jersey, is a leading source of business news and information through its magazine, website, and newsletters. Founded by B.C. Forbes and Walter Drey, the magazine’s first issue was published in 1917. Over the past century, it has developed many iconic franchises, such as the Forbes 400, Forbes Billionaires List, Forbes 30 Under 30, and many others. It has developed into much more than a magazine with the launch of conferences, forbes.com, Forbes School of Business, Forbes Insights (a consulting service), and others. Figure #7 Forbes Timeline lists some of the highlights over the last hundred years.   

Figure #7 Forbes Timeline

Source:

Today, Forbes is an iconic brand that reaches millions through various digital and social media platforms, as well as through its print business. The company’s digital ecosystem reaches about 150 million people, which includes 79 million monthly organic search views. Notably, Forbes’ website is a top 50 global internet site with 3.5 billion annual page views. Forbes also boasts 42 million social media followers and 6 million readers of its printed content. The number of monthly active users for Forbes’ content put the company alongside such media titans such as the Wall Street Journal, CNN Business, and Bloomberg. Figure #8 Competitive Position illustrates that in spite of significant competition, Forbes  ranks among the top in business-related news and information among its peers. ———- page break ———-

Figure #8 Competitive Position

Source: Forbes Investor Presentation

Business Segments

The company’s multitude of businesses fall into three categories: Media, Brand Extension, and Consumer. Media primarily consists of the company’s website, the magazine, and the company’s advertising solutions platform called BrandVoice. Brand Extensions encompasses conferences, licensing, consulting, and reprints. Consumer includes digital subscriptions, newsletters, and e-commerce. 

Media

Revenues from the company’s Media segment are generated either through print advertising and subscriptions, or digital advertising. As such, advertising on forbes.com and Forbes’ social media pages, magazine advertising and subscriptions, and advertising produced through BrandVoice, all contribute to the company’s Media revenues. Notably, the company transitioned to a digital media company in 2013 when digital advertising accounted for more revenue than from its magazine. This was achieved through strong active users of its website, Forbes.com. Figure #9 Forbes.com illustrates the powerful reach of its website.

Figure #9 Forbes.com

Source: Forbes Investor Presentation

BrandVoice was launched in 2010 as a native advertising solution for Forbes’ advertising customers. It allows advertisers a multitude of options for accessing specific demographic groups within Forbes’ broad audience across the company’s many platforms. By offering such tailored advertising solutions, BrandVoice increases the effectiveness of advertisements, which can lead to strong relationships with advertisers. Figure #10 BrandVoice gives a snapshot of BrandVoice’s reach.

Figure #10 BrandVoice

Source: Forbes Investor Presentation

Management expects the Media segment to account for 65% of total revenues for the full year 2021. As discussed later in this report, management believes that the Media segment will account for a smaller 45% of total revenues in the future due to growth opportunities in its Consumer segment.

Brand Extension

Revenues from the company’s Brand Extension segment consist of trademark licensing, custom-created content, reprints, and consulting services (Forbes Insights). Figure #11 exhibit Forbes’ brand extensions. 

• Licensing revenue comes from the company’s authorization of the use of the Forbes brand around the globe. Some examples of this are Forbes Japan, Forbes India, and Forbes/Shook Top Advisor.
• Forbes’ custom content includes events like conferences, some examples of which are Forbes CEO, Forbes CIO, and Forbes Women. These events often unite industry-leading minds, business icons, and today’s business leaders to provide useful content for both in-person and virtual audiences.
• Reprints refers to when the company permits businesses or individuals who were featured in Forbes’ content to re-purpose the content (e.g. an article) for use on their own media platforms.
• Forbes Insights is the company’s consulting business which leverages data and expert perspectives from the company’s network of C-level executives to provide valuable guidance to clients. 

Management expects the Brand Extension segment to account for 22% of total revenues for the full year 2021. 

Figure #11 Brand Extensions

Source: Forbes Investor Presentation

Consumer

The Consumer segment revenues come from e-commerce and digital subscriptions. E-commerce revenue is generated by the company’s affiliate marketing arrangements with vendors on Forbes’ sites. That is, when audiences follow the affiliate links posted on Forbes’ websites to purchase a product or service from a vendor, Forbes is paid a commission. Digital subscription revenue is generated from paid access to exclusive content on Forbes.com and other premium offerings such as newsletters. Management expects the Consumer segment to account for 12% of total revenues for the full year 2021, but this segment offers substantial revenue growth opportunities. 

Growth Strategy

The company plans to build its subscription-based business through a two-step process. First, the company’s strategy involves capturing detailed audience data to better understand the varying demands for Forbes content offerings. Second, by using these enhanced insights into Forbes’ audience groups, the company will create highly targeted and personalized content. The goal of this more tailored approach to content creation is to increase audience engagement, brand loyalty, and ultimately drive user adoption of paid content, providing a recurring revenue stream. The company’s long-term goals are to eclipse 1 million paid subscribers to its premium content packages (currently 23K subscribers) and 100K high-value paid subscribers. High value subscribers refers to those with a lifetime spend of over $1,000. Figure #12 Revenue Transformation illustrates how management sees the growth strategy leading to a higher proportion of revenue being generated from the Consumer segment in the future. Notably, the Consumer segment encompasses digital subscription revenue, which is a primary aim of the growth strategy.

Figure #12 Revenue Transformation

Source: Forbes Investor Presentation

The company also plans to make investments in businesses that will lead to synergies by introducing new audiences to Forbes’s other services. One example of such an investment is Forbes’ majority stake in Q.ai, a robo-advisory and trading app that caters to the younger generations of investors, using machine learning to provide portfolio management insights. Figure #13 Q.ai highlights leading favorable metrics. Notably, Q.ai was recognized as the 2021 Fintech Breakthrough Awards’ “Best Retail Investment Platform.” 

Figure #13 Q.ai

Source: Forbes Investor Presentation

The company plans to focus its growth strategy on certain popular business areas that have already demonstrated significant user demand, since these area offer the greatest likelihood for meaningful subscription uptake. These areas include:

1. Personal finance & Investing
2. eLearning & Training (e.g. Forbes School of Business)
3. Entrepreneurship & Technology (e.g. Forbes 30 under 30)
4. Lifestyle & Entertainment (e.g. Forbes Travel Guide, Forbes Global Properties)
5. Entertainment (e.g. Forbes’ documentaries)

Figure #14 Forbes Technology highlights data metrics for its technology strategy. In order to successfully execute its growth strategy, which requires gathering audience insights and putting those insights to use in content creation, the company will rely on certain pivotal technology, including the following platforms: 

1. ForbesOne is a data analytics platform that Forbes built in-house. It analysis data across Forbes’ platforms to identify audience categories, using income demographics, interests, consumption patterns, and other factors. ForbesOne provides insights for Forbes’ advertising partners to make their campaigns more effective. It also will provide key insights in Forbes’ growth strategy, which starts with understanding what audiences are looking for.
2. Bertie is a publishing platform, which uses AI to make Forbes’ journalists more efficient. It provides support to more than 2,500 journalists and contributors for the company by offering trending topics, story suggestions, headline optimization, advice for search engine optimization (SEO), and generally provides feedback to writers.
3. AD TECH is an ad stack technology platform that optimizes advertising volume and revenue yield.

Figure #14 Forbes Technology

Source: Forbes Investor Presentation

About Magnum Opus. Magnum Opus Acquisition Limited is a special purpose acquisition company, which trades on the New York Stock Exchange (Symbol: OPA). Magnum Opus is sponsored by L2 Capital, a Hong Kong based private investment firm. L2 Capital was founded in 2020 by Jonathan Lin, Frank Han, and Kevin Lee, who bring prior experience across public investment management, private equity, and venture capital.

Financial Overview

Forbes’ balance sheet, as of September 30, 2021, is illustrated in Figure #15 Balance Sheet. At that time, the company had $30 million in cash. Upon completion of the business combination, Forbes is expected to have $145 million in cash and no debt on its balance sheet. 

Figure #15 Balance Sheet

Source: Company filings and Noble

Recent Results and Outlook

During the pandemic year of 2020, revenues declined 12%. However, the company’s operating margins did not decline significantly during 2020, despite the difficult economic environment. As Figure #16 2019 & 2020 Operating Results illustrates, operating profit margin was 5% in 2020 compared to 6% in 2019.

Figure #16 2019 & 2020 Operating Results

Source: Company filings and Noble

Following the revenue decline of 2020, the company rebounded over the first 9 months of 2021 with year-over-year revenue growth of 34%. Figure #17 2021 First 9 Months Operating Results illustrate the recent performance. Notably, operating profit margin was 9% compared to -2% for the same period in 2020. 

Figure #17 2021 First 9 Months Operating Results 

Source: Company filings and Noble

Management expects the revenue rebound to continue with guidance of accelerating revenue growth of 11% for the full year 2021 and 12% in 2022 to $201 million and $224 million, respectively. As illustrated in Figure #18 Projected Revenue Growth, the Consumer segment is expected to grow at the highest rate, at 51% CAGR from 2020 through 2022. The Consumer growth projections are reflective of the company’s strategy to grow its subscription-based digital revenues. Management anticipates full year 2021 EBITDA of $44 million, reflective of 41% margins. Looking forward toward full year 2022 and 2023, management anticipates $53 million, up 20%, and $66 million, up 25%, respectively. The company anticipates a 30% CAGR for EBITDA from 2020 to 2023.   

Figure #18 Projected Revenue Growth

Source: Forbes Investor Presentation

Management Overview

Magnum Opus Management

Jonathan Lin:  Mr. Lin currently serves as the CEO and Chairman of the board of Magnum Opus Acquisition Limited. Additionally, in 2020 Mr. Lin Co-Founded L2 Capital Partners (the sponsor of Magnum Opus), a private equity firm, where he acts as Chief Investment Officer and Partner. Before co-establishing L2 Capital, Mr. Lin had experience at the renowned $15 billion asset manager, Point72, where he served as Portfolio Manager and Managing Director from 2016 to 2020. Prior to that, he also worked at Och-Ziff Capital Management, where while serving as non-executive director he focused on a variety of fields from merger arbitrage to private equity. Notably, Mr. Lin also built his resume at Madison Dearborn Partners, a $26 billion private equity firm, and in the investment banking, mergers, and acquisitions department at Citigroup in New York. Mr. Lin earned his Bachelor of Commerce with Honors from the University of British Columbia and is a Leslie Wong Fellow

Frank Han: Mr. Han, President of Magnus Opus is also the Co-Founder and Partner at L2 Capital. Prior to Co-Founding L2 Capital, Mr. Han worked as a Senior Principal at the Blackstone Group in the Hong Kong and Shanghai area from 2012 to 2019. During his time at Blackstone, one of the largest asset managers in the world with $619 billion AUM, he led the sourcing and implementation of private equity investments in Greater China for Blackstone Capital Partners, Blackstone’s flagship private equity fund. He managed to deploy $2 billion in enterprise value while also serving on boards of multiple portfolio companies. Additionally, Mr. Han had experience at the buyout group of the Carlyle Group in both China and Washington D.C. He also had experience at Goldman Sachs’ Asian Special Situations Group and at McKinsey & Co. Mr. Han obtained his Bachelor of Science, Magna Cum Laude, from the New York University and a Master of Business Administration from the Wharton School of the University of Pennsylvania.

Kevin Lee: Mr. Lee presently serves as Chief Financial Officer and Director of Magnus Opus and is also a Co-Founder and Partner at L2 Capital. He brings over 10 years of experience as a capital markets advisor, investor, and operator. Before Co-Founding L2 Capital, Mr. Lee acted as an Investment Director focusing on emerging technologies such as fintech, SaaS, and data services in the venture capital arm of Gallant Investment Partners, a Hong Kong-based family-office investment firm. During his time at Gallant, he also directed one of its portfolio companies, Genesis Games, filling in as Chief Executive Officer and Director, where he led the evolution of the organization from an independent games studio to a worldwide enterprise software company. He achieved several milestones while leading Genesis Games, such as product offering expansion, segment geographical extension into Asia, developing an AI division, and successfully completing the sale of Genesis to a European strategic conglomerate. Before his experience at Gallant Investment Partners, Mr. Lee held several positions at first-tier firms like the Standard Chartered Bank in Hong Kong, Citigroup, and BMO Capital Markets. Mr. Lee received his Bachelor of Commerce with Honors from the University of British Columbia and his Master of Finance with High Distinction from the University of Toronto. Additionally, he earned his MBA from the Kellogg School of Management from Northwestern University and earned the Chartered Financial Analyst (CFA) and Chartered Professional Accountant (CPA) designations.

Forbes Management.

Steve Forbes: Mr. Forbes, the grandson of Forbes Magazine founder, B. C. Forbes, is the current Chairman and Editor-in-Chief of the company. Early in his career, Mr. Forbes founded Business Today, the largest student-run magazine in the world. Additionally, Mr. Forbes served as head of the Board of International Broadcasting during the Reagan and Bush administrations. Subsequently, he was involved in various conservative political activities, ultimately entering the Republican primaries for President of the United States in 1996 and 2000. Later, Mr. Forbes joined the Board of Directors at FreedomWorks and the National Taxpayers Union. Notably, he holds a leadership position as a member of the board of trustees of The Heritage Foundation. Mr. Forbes earned his History degree from Princeton University.

Michael Federle: Mr. Federle became Chief Executive Officer of Forbes Media LLC, a wholly-owned subsidiary of Forbes in 2017. Notably, he also serves on the board of directors of Forbes Media LLC. Originally, he joined the company back in 2011, filling in as President and Chief Operating Officer at the time. Since he was appointed CEO, Mr. Federle has enhanced Forbes’ digital transformation while recording the company’s best two years on record in 2018-2019. Mr. Federle brings over 25 years of experience in the media industry, where he has held leading positions as the Publisher of Fortune magazine and the Group Publisher of the Time Inc. Business & Finance Network that contained media names such as Fortune, Money, Business 2.0, and CNNMoney. Before joining Forbes, Mr. Federle Co-Founded Techonomy Media Inc, a multimedia company where he served as President and Chief Operating Officer. Forbes Media LLC then acquired an equity stake of Techonomy Media in July 2011. Mr. Federle was educated at Tulane University and Colby College where he earned his B. A and master’s degree respectively.

Michael York: Mr. York serves as Chief Financial Officer of Forbes Media LLC. He first joined Forbes in 2002 as a financial analyst, and later became Senior Vice President of Finance prior to his current role as CFO. Mr. York has experience in the auditing field, where he worked for 4 years in the greater Boston area before joining the company. Mr. York received his Bachelor of Science in Accounting and Finance from Nichols College. Additionally, he is a licensed Certified Public Accountant in the Commonwealth of Massachusetts.

Jessica Sibley: Ms. Sibley currently serves as Chief Operations Officer of Forbes Media LLC. She was recently appointed to the role in January 2022, before which she served as the company’s Chief Revenue Officer for the prior two years. Among other positions held with Forbes from 2014, she worked as Chief Sales Officer, SVP of Sales for the U.S. and Europe, SVP Ad Sales East and EMEA, and VP Ad Sales East. Prior to Forbes, Ms. Sibley held several leadership positions at renowned international media companies, including Conde Nast, Bloomberg, and The Wall Street Journal. Ms. Sibley additionally serves as co-chair of IAB’s CRO Council, and on the board of directors for The Ad Council, The Business Marketing Association, and is a Member of the Board of Advisors at Chief and Her Campus. Ms. Sibley was educated at Hobart  College and William Smith Colleges.

Randall Lane: Mr. Lane has been the Chief Content Officer of Forbes since 2017 and editor of Forbes Magazine since 2011. Under his watch, Forbes released successful franchises like the Forbes’ 30 Under 30 and helped to significantly augment the readership levels for the magazine. Before joining the company, Mr. Lane co-founded and worked as Editor-in-Chief of several distinguished magazines and websites including P.O.V., Trader Monthly, and Dealmaker. He also has experience as Editor-at-Large of  The Daily Beast where he was an early member of the team. Mr. Lane began his career at Forbes in 1991 and served as reporter, staff writer, and Washington bureau chief. He is a member of the board of directors of Global Citizen as well as Just Capital. Additionally, he serves on the Board of Overseers of Columbia’s School of Professional Studies and three boards affiliated to the University of Pennsylvania where he was educated.

Nina Gould: Ms. Gould is currently serving as Chief Product Officer of Forbes, where she leads a team of world-class product managers, designers, and experts in the industry. Her unique role is a crucial asset for the company, where she is focused on developing the products that define the Forbes brand distinction across multiple platforms. Importantly, Ms. Gould has had a meaningful impact on Forbes’ growth, making the company a consistent world’s largest business media brand alongside companies like Apple, Netflix, or Google. Prior to Forbes, she held positions in the UI/UX design and front-end web development area and imparted photography and visual reportage. She was born and raised in New York City and earned her degree in Photography at Bard College.

Vadim Supitskiy: As Chief Technology Officer of Forbes, Mr. Supitskiy leads the technological innovation of the company and guarantees the prominent position as one of the world’s leading brands. He is an experienced professional at Forbes, working with many areas of the company – editing, advertising, live events, and more – to employ and optimize technology for the benefit of employees, readers, and partners. Some of his greater achievements with the company are the cloud migration in record time while concurrently introducing a redesigned site and a brand-new CMS. Before joining Forbes, Mr. Supitskiy worked for the city of New York and significantly evolved its internal technology tools. He received his BA in Computer Science from Brooklyn College.

Pro Forma Ownership and Stock Valuation

Figure #19 Forbes Ownership provides a summary of the pro forma equity ownership of the company, post-transaction. Upon completion of the merger, there will be 83 million shares outstanding launching at $10 per share. The current Forbes shareholders will obtain 21.7% of the pro forma ownership while the PIPE investors and Opus Public shareholders will control 48.2% and 24.1%, respectively, in exchange for the $400 million and $200 million cash contributions. Lastly, Opus founders’ will hold the remaining 6% of the pro forma ownership.

Figure #19 Forbes Ownership

Source: Forbes’ Investor Presentation and Noble Capital Markets Research

Stock Valuation

Figure #20 Forbes Peer Group highlights the company’s industry peers. The peer group consists of five different sectors in which the company operates: Publishers, Data Information, Media, Education, and Entertainment. The OPA shares trade at a discount when compared to the company’s peer group. This is based on management’s 2022 EBITDA guidance of $55 million. The enterprise value calculation for Forbes is based on 83 million shares outstanding, proforma post-merger cash of $145 million, and no debt. Near current levels, the OPA shares trade at 12.8 times EV to 2022 EBITDA and 10.3 times EV to 2023 EBITDA. If the shares were to trade in line with the company’s peer group average of 17.7 times of 2022 EBITDA and 14.9 times of 2023 EBIDA, the shares would trade at $14, a 40% premium to current levels.

Figure #20 Forbes Peer Group

Source: Forbes’ Investor Presentation and Noble Capital Markets Research

 

Another way of look at the stock valuation would be to use comparable transaction multiples from a peer group of branded business information companies. Investor’s Business Daily, the Financial Times, and Fortune were sold at an average of 4.6 times Enterprise Value to Revenue and 25.8 times EV to EBITDA. Figure #21 Comparable Transactions highlights the valuations. The average EV/EBITDA multiple paid for the businesses listed below was 25.8 times EV to trailing EBITDA. Such a multiple would imply an intrinsic value of $18 on the OPA shares based on full year 2022 EBITDA estimate of $53 million. The comparable transaction peers are especially compelling because they are close competitors to Forbes and all have well-known brands. In our valuation methodology, we set price targets at 80% of private transaction values, or implied intrinsic value. This would arrive at a price target of $14. 

Figure #21 Comparable Transactions

Source: Forbes’ Investor Presentation 

We believe that both valuation methods arrive at a similar price target of $14. Notably, the shares of OPA appear to offer attractive upside. This assumes the application of the target multiples to Forbes expected 2022 EBITDA of $53 million. Given the substantial upside appreciation potential, the OPA shares appear to offer a favorable risk/reward relationship. 

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ANALYST CREDENTIALS, PROFESSIONAL DESIGNATIONS, AND EXPERIENCE

Director of Research. Senior Equity Analyst specializing in Media & Entertainment. 34 years of experience as an analyst. Member of the National Cable Television Society Foundation and the National Association of Broadcasters. BS in Management Science, Computer Science Certificate and MBA specializing in Finance from St. Louis University.
Named WSJ ‘Best on the Street’ Analyst six times.
FINRA licenses 7, 24, 66, 86, 87

WARNING

This report is intended to provide general securities advice, and does not purport to make any recommendation that any securities transaction is appropriate for any recipient particular investment objectives, financial situation or particular needs. Prior to making any investment decision, recipients should assess, or seek advice from their advisors, on whether any relevant part of this report is appropriate to their individual circumstances. If a recipient was referred to Noble Capital Markets, Inc. by an investment advisor, that advisor may receive a benefit in respect of transactions effected on the recipients behalf, details of which will be available on request in regard to a transaction that involves a personalized securities recommendation. Additional risks associated with the security mentioned in this report that might impede achievement of the target can be found in its initial report issued by Noble Capital Markets, Inc.. This report may not be reproduced, distributed or published for any purpose unless authorized by Noble Capital Markets, Inc.

RESEARCH ANALYST CERTIFICATION

Independence Of View
All views expressed in this report accurately reflect my personal views about the subject securities or issuers.

Receipt of Compensation
No part of my compensation was, is, or will be directly or indirectly related to any specific recommendations or views expressed in the public
appearance and/or research report.

Ownership and Material Conflicts of Interest
Neither I nor anybody in my household has a financial interest in the securities of the subject company or any other company mentioned in this report.

NOBLE RATINGS DEFINITIONS	% OF SECURITIES COVERED	% IB CLIENTS
Outperform: potential return is >15% above the current price	97%	30%
Market Perform: potential return is -15% to 15% of the current price	6%	3%
Underperform: potential return is >15% below the current price	0%	0%

NOTE: On August 20, 2018, Noble Capital Markets, Inc. changed the terminology of its ratings (as shown above) from “Buy” to “Outperform”, from “Hold” to “Market Perform” and from “Sell” to “Underperform.” The percentage relationships, as compared to current price (definitions), have remained the same.

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Report ID: 24433

Wednesday, March 02, 2022

Gray Television (GTN)
A Cash Flow Machine

Gray Television, Inc. operates as a television broadcast company in the United States. As of April 6, 2010, it operated 36 television stations in 30 markets, including 17 affiliated with CBS Inc.; 10 affiliated with the National Broadcasting Company, Inc.; 8 affiliated with the American Broadcasting Company (ABC); and 1 affiliated with FOX Entertainment Group, Inc. (FOX). The company also operated 39 digital second channels comprising 1 affiliated with ABC, 4 affiliated with FOX, 7 affiliated with CW Network, LLC, 18 affiliated with Twentieth Television, Inc., 2 affiliated with Universal Sports Network, and 7 local news/weather channels. Gray Television, Inc. was founded in 1897 and is headquartered in Atlanta, Georgia.

Michael Kupinski, Director of Research, Noble Capital Markets, Inc.

Patrick McCann, Research Associate, Noble Capital Markets, Inc.

Refer to the full report for the price target, fundamental analysis, and rating.

Strong operating results. The company reported full year 2021 revenue of $2.413 billion, 2.2% higher than consensus estimates. Adj. EBITDA was especially strong for the year at $739 million, which beat consensus by 7.4%.


Auto set for a comeback.  Auto was 17% of core advertising revenue in 2021 compared with 21% of core advertising revenue in 2020. In Q3 2022, management expects auto to begin recovering but it may not be fully recovered until 2023. Given the emergence of categories like sports betting, we believe the compounding effects of auto recovering could drive meaningful revenue momentum …

This research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).

*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary.  Proper due diligence is required before making any investment decision.