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Thursday, March 23, 2006

Penton's 2005 Results 

UPDATE: Please see my related post on Valuing Penton, which comes to a very different conclusion than my speculation in this post.

Penton Media, Inc. (PTON) released its 2005 annual report, and while the topline results are somewhat mixed, I think there's continuing good news from the Cleveland-based b2b media company. (Disclosure: long-time readers of this blog know that I own some Penton stock, and that I've lost money on that stock, but that I continue to hold the stock so that I can make disclosure statements like this).

Overall revenues for the year were down 1%, to $192.8 million, but net loss was down to just $8.4 million, from last year's $67.2 million, and adjusted EBITDA climbed 21.8% to $40.8 million.

The revenue decline came primarily from print publishing, which dropped to $134.2 million from $141.4 million the prior year. But events revenue was up 6.3%, to $40.2 million, and e-media revenues were up 17.9%, to $18.4 million.

I think this latter number is particularly impressive, and probably makes Penton one of the few b2b portfolio companies to register e-media revenues of this size (by comparison, Advanstar delivered $3.6 million in e-media revenues in 2005). According to the company, it now operates 47 "core" sites, and increased its unique visits 18% to 43.2 million. Online advertising revenues grew 36%, search revenues ballooned 78% and webcast revenues increased 19% in 2005. And e-media revenues account for nearly 10% of total revenues.

On the events front, the company launched 57 conferences and roadshows in 2005, and increased conference attendance 45% over 2004.

And its custom publishing effort seems to be paying off, with revenues in that area up 29%.

The big overhang, of course, remains the company's debt, which was reduced about $10.5 million over the year, but still stands at a whopping $323 million, with annual debt service at $39.5 million for the year.

However, there's still--to my mind--a lot of value left in Penton. I really have no clue how the various common and preferred stock levels work, though I operate under the assumption that common shareholders will get the short end of the stick at all times. That said, here's my quick calculation of Penton's value, assuming all shares are common shares:

Penton's stock price was 67 cents as of yesterday, with a market cap of $23.11 million.

Penton's 'market value,' based on its adjusted EBITDA and a relatively conservative 11x multiple (given the multiples of other transactions of this size), is $449.55 million.

Subtracting the debt leaves a value of $126.5 million. So the stock market is undervaluing Penton by a little over $100 million, given current revenue, EBITDA and debt load. If all shares were common shares, the stock price theoretically should be about $3.66 if those shares were fully valued. (Again, please see Valuing Penton, where I compute the value a bit more accurately at -$1.25 per share).

Again, I don't understand how the preferred shares work, and don't have enough invested to spend the time trying to figure this out. And I understand that the calculations I'm making are inherently false, since the stock market will never fully value this company until it can turn a true profit and deliver some measure of P/E ratio. But Penton does seem to be on the right track toward recovery, and may find itself an increasingly attractive merger target for another big b2b media company, or an increasingly attractive private equity play.

But you know how I feel about private equity plays.

And the stock market, viz b2b media companies.

See also my friend Hugo Martin's take on Penton.

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