TEXT-S&P affirms Grupo Televisa 'BBB+' rating
Overview -- Grupo Televisa S.A.B.'s cable and telecom and direct-to-home (DTH) satellite TV segments' strong performance have contributed to the company's solid financial performance. -- We are affirming our 'BBB+' global scale and 'mxAAA' national scale ratings on Televisa. -- The stable outlook reflects our view that Televisa's key financial metrics will remain stable over the next two years, fueled by its revenue growth. Rating Action On Nov. 7, 2012, Standard & Poor's Ratings Services affirmed its 'BBB+' global scale and 'mxAAA' national scale ratings on Grupo Televisa S.A.B. The outlook remains stable. Rationale The 'BBB+' global scale rating on Televisa reflects the company's "satisfactory" business risk profile and its "modest" financial risk profile. The rating also reflects Televisa's positive free cash flow generation, high operating margins, strong liquidity, manageable maturity debt profile, its leadership in Mexico's (foreign currency rating BBB/Stable/A-2, local currency rating A-/Stable/A-2) television industry, and its increasing participation in the telecommunications industry. However, these factors are partly offset by the company's somewhat dependence on advertisement revenue, its high capital expenditures requirements, and the increased competition in Mexico's telecom industry. Our view of country risk in Mexico influences our ratings on Televisa because the company's operations are concentrated in this market. We stress tested the company under a Mexican sovereign default scenario, including a sharp currency devaluation and a significant decline in the company's revenue and EBITDA. Under this scenario, we concluded that Televisa would still be able to generate sufficient cash flow to service its debt obligations. Televisa is the largest media company in Mexico, with holdings in a wide variety of businesses, including content, cable and telecom, Sky (the company's the direct-to-home satellite television unit), and publishing among others. While the company is still somewhat dependent on advertising revenue, the growth in the cable and telecom and Sky segments have allowed Televisa to diversify its revenues. For third-quarter 2012, the cable and telecom and Sky segments accounted for 22% and 21% of consolidated revenues, respectively, compared with 15.5% and 18% for the same period in 2008. In addition, Televisa's investment in Grupo Iusacell S.A. de C.V. (Iusacell; not rated), a Mexican wireless provider, is in line with the company's continued pursuit of growth opportunities and diversification in the telecom sector. Although the company's equity participation in Iusacell is still negative, we believe it could turn positive in the next few years as the company increases its subscriber base. Televisa's financial results remain positive, in our view. The company's revenues increased by 8.7% during third-quarter 2012, compared with the same period in 2011. This reflected revenue growth, particularly in the content, cable and telecom, and Sky segments. The EBITDA margins remained stable at about 40%. Under our base case scenario, we expect a high single-digit increase in revenues during the next few years, driven by the company's content, Sky, and cable and telecom segments. We expect that the content segment's ad revenues will increase with or slightly below Mexico's GDP growth. We also expect that royalties from Univision will continue to grow as a result of an increase in retransmission revenues. Sky and cable and telecom segments will likely derive growth from an increased subscriber base and, to a lesser extent, from the sale of premium services. We expect that the EBITDA margin will remain very stable at about 40% going forward. Liquidity We consider Televisa's liquidity as strong under our criteria. We anticipate that the sources of liquidity will exceed uses by a ratio of more than 1.5x over the next 12 months to 18 months. In our forecast, we expect the sources of liquidity to include cash of Mexican peso (MXP) $21.58 billion as of Sept. 30, 2012, and funds from operations (FFO) of more than MXP$28 billion for the next 12 months. We expect that cash uses for the next 12 months will include capital expenditures of about MXP$11.0 billion and will remain focused on the cable and telecom and Sky segments, debt maturities of about MXP$520 million, and dividend payments of about MXP$1.5 billion. Televisa's stable cash flow generation supports strong liquidity. During the first nine months of 2012, the company reported FFO of MXN19.3 billion, which, when paired with its solid cash position, is enough to cover its capital expenditures and its investments. We expect that the company will keep generating positive free operating cash flow through the next few years. Our liquidity analysis also incorporates qualitative factors, including our view that the company has the capacity to withstand high-impact low-probability events, its sound banking relationships with banks and access to capital markets, and an overall prudent financial risk management. Televisa's covenant headroom was ample as of Sept. 30, 2012, in our view. Outlook The stable outlook reflects our view that Televisa's stable revenues and operating margin trends will continue over the next two years. The outlook also takes into account our assumption that Televisa's moderate financial policy will maintain the company's financial ratios commensurate with a solid investment-grade rating. We could lower the ratings over the next two years if Televisa's adjusted debt to EBITDA were to persistently exceed 2.5x, or if the company's adjusted FFO-to-debt ratio were to fall to less than 30%. Factors that could contribute to such a development include a reverse in the currently favorable operating trends, aggressive debt-financed acquisitions, or additional unexpected cash outflows for the Iusacell investment. We consider the possibility of an upgrade to be remote because of the risks associated with operating in Mexico, the strong competition, and the sovereign credit ratings on Mexico. Related Criteria And Research -- Key Credit Factors: Criteria For Rating The Television And Radio Broadcasting Industry, Dec. 11, 2009 -- Key Credit Factors: Business And Financial Risks In The Global Telecommunication, Cable, And Satellite Broadcast Industry, Jan. 27, 2009 -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008 Ratings List Ratings Affirmed Grupo Televisa S.A.B. Issuer Credit Rating Global Rating Scale BBB+/Stable/-- Caval - Mexican Rating Scale mxAAA/Stable/-- Senior Unsecured Global Rating Scale BBB+ Caval - Mexican Rating Scale mxAAA Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
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