For the last three years Salem Communications Corp. has been expanding its media reach and shoring up its balance sheet. Now it’s telling that story to investors – and offering them a dividend, too.
The strategy appears to be working. Salem stock has doubled in the last six weeks.
The Camarillo company in early March reported that profits tripled last year over 2010 on a 6 percent revenue increase. In a conference call on the earnings, the Christian and conservative broadcaster and Internet site owner introduced a 3.5-cent quarterly dividend on its stock, a move designed to appeal to income investors. It had no dividend before.
Salem’s Chief Executive Edward Atsinger announced to analysts in the same call that the company’s top management would be taking a much higher profile, making many more presentations to investors and analysts.
“We continue to believe that our equities are undervalued,” Atsinger told investors as the stock was trading at about $2.70. “To some extent, we probably bear some responsibility in this. …We haven’t had the opportunity to get out and talk to the investment community as much as we would have liked. We’re going to change that.”
Since then, investors have taken a shine to Salem. The company’s share price has more than doubled, closing April 18 at $5.48. Last week’s rise of 12 percent made Salem the third largest gainer on the LABJ Stock Index. (See page 32.)
“Investors have welcomed management’s move to increase the company’s visibility,” said Anil Gupta, with Century City-based Imperial Capital LLC and one of a handful of analysts following the company.
Gupta said that the dividend has indeed attracted what he termed a “new class” of investor and that the increased interest in the company has helped push up stock price.
Paying down debt
Salem bills itself as the nation’s largest commercial radio broadcasting company aimed at Christian and politically conservative audiences, with a portfolio of 96 radio stations in 38 major media markets, and a station on the SiriusXM satellite radio network. The company also owns several Christian-themed and conservative print magazines and online websites, including Jesus.org and GodTube.com.
Its L.A.-area stations are KKLA-FM (99.5), KRLA-AM (870), KXMX-AM (1190) and KFSH-FM (95.9).
Gupta, who has an “outperform” rating on Salem’s stock, said the company in recent quarters has focused intensely on paying down a substantial debt load, boosting its Internet presence and positioning itself to capitalize on the surge in religious political activism during the presidential campaign.
Salem has redeemed as much as $35 million in bonds and other debt each of the past several years. As of Dec. 31, its total debt stood at $275 million, which Chief Financial Officer Evan Masyr said was the lowest level since 2000.
Meanwhile, Salem has been acquiring radio stations, websites and magazines at a pretty steady clip. About the beginning of the year, for example, it picked up two radio stations in Texas. In February, Salem acquired Hot Air, a website run by conservative commentator and host Michelle Malkin. Earlier this month, Salem entered into a partnership with TuneIn of Palo Alto, a free Internet service that lets people listen to news, sports, music and comedy from around the world.
Salem’s new emphasis on the Internet has paid off. Revenue from online operations jumped 36 percent in 2011 from 2010 levels.
“They are focusing more on their digital assets than on the broadcast airwaves, making acquisitions and expanding their web presence,” Gupta said. “That strategy definitely makes sense.”
The one risk, he said, is that Salem could face challenges in integrating some of its recent acquisitions into its overall operations. So far, the company has avoided such pitfalls.
Political advertising
Salem is also poised for a major revenue gain during this political campaign season.
Increased political spending should offset any broader decline in advertising revenues should the economy slow down, Gupta said.
In 2010, Salem booked nearly $4 million in political ad revenues from conservative-oriented campaign committees. But now that super political action committees aren’t limited by fundraising restrictions, company executives expect to top that figure.
“There’s more money out here this time than we’ve seen in any previous (election) cycle, what with the super PAC money and all,” Atsinger said in the conference call. “We’ve gotten a good piece of that in the fourth quarter and I suspect that it will be certainly as good as it was in 2010. … And it very likely will be better.”
