Satellite Radio Playground

By Demian Russian

In a new research report issued on the heels of Sirius XM Radio’s (NASDAQ:SIRI) first quarter financial and operating results, RBC Capital Markets Global Media Analyst David Bank reiterates his Sector Perform/Speculative Risk rating and $1.50 price target on the equity. While Bank views Sirius XM’s fundamentals and balance sheet as “relatively solid,” he doesn’t find the current valuation compelling — even when factoring in a subscription price increase of $3.00.

For each $1.00 increase in base subscription price, we estimate EV/EBITDA would compress by ~2x turns. While that is a dramatic figure, recall that even when attributing the value for NPV of SIRI’s NOLs, a $3.00 price increase would still put the multiple at over 10x FY12E EV/EBITDA — well in excess of peers (media conglomerates trade at ~7x).

– David Bank, RBC Capital Markets

While Bank notes that his current estimates and price target do not factor in any potential subscription price increase, he does note that Sirius XM management has indicated that a price increase, after the regulatory prohibitions are lifted in July 2011, is more a matter of “when” rather than “if” and that he will revisit this after getting more clarity. Bank doesn’t expect any potential price increase to materially impact Sirius XM’s full-year 2011 results, as any potential price increase would likely happen later in the year, but he does see possible impact in 2012. 

Bank saw Sirius XM’s Q1 results as being mixed. While he did note that reported net subscriber additions of 373,064 came in well ahead of the street’s estimates, he also saw ARPU trends being soft. While he sees supply chain issues related to the tragedy in Japan creating uncertainty, he sees the full-year 2011 outlook remaining largely unchanged. If it were not for the supply chain concerns regarding Japan, Bank believes management would of raised 2011 guidance further beyond the “modest” $50 million in raised FCF guidance. Bank is expecting Sirius XM to end the year close to a target debt leverage ratio of ~3x, which he sees as “leaving flexibility with respect to investment in business and return of capital to shareholders.”

RBC Capital Markets Global Media Analyst David Bank will be discussing his views on Sirius XM (NASDAQ:SIRI) during an exclusive, live interview with Playground Radio on Wednesday, May 25th at 8:00 pm ET.

David Bank

David Bank is a highly regarded analyst who brings many years of experience in equity research, high-yield research, and investment banking. He was named a Wall Street Journal Best on the Street for the media sector in 2009, and has also received recognition as an earnings estimator in the annual StarMine rankings (No. 1 in 2007, No. 3 in 2009). David joined RBC Capital Markets in 2000 from ING Barings, where he was a senior member of the equity research division. Prior to that, he worked in the high-yield research division at ING Barings, covering telecommunications and media companies. Before becoming a research analyst, David was an investment banker at both Furman Selz LLC (later acquired by ING Barings) and CS First Boston.

Playground Radio airs live every Wednesday night at 8:00PM Eastern. Previous episodes of Playground Radio, including previous interviews with David Bank, are available to be streamed or downloaded. The May 25th episode of Playground Radio will be available to be streamed live via the following link:

Contact the author: DemianRussian@SatelliteRadioPlayground.com