Schibsted ASA (SCHA NO)

On July 22, 2013, DeMatteo Monness (DM) interviewed one of its clients about his long thesis on Schibsted ASA (SCH NO). Steven Weber, DM’s Director of Research, conducted the interview, and discussion topics included: an overview of how the client looks at SCH’s business, what approach is most reasonable to value the company’s shares, variables important to its future growth/ success, factors that influence whether SCH can monetize its properties, risks worth watching/ dismissing, and more. This summary note reflects the opinions and judgments of DM’s client, not the opinions or judgments of DM. DM does not exercise any control over the information or point of view expressed and reflected below.

Why you should care: The proper framing of the investment case is critical to understanding the long-term investment opportunity in shares of Schibsted (SCH). While the company’s print business is a large piece of overall revenues and EBITDA, it can be valued away to make for a less daunting look at a relatively complex business structure. Mature online classifieds are “fantastic economic business models,” and despite conservative estimates and comparative analyses, there is “huge optionality in the potential value created by monetization of emerging online classifieds in numerous countries over the next three-to-five years.” SCH is by far the dominant online classifieds player in Norway and Sweden, and has 80 opportunities (20 markets, up to four verticals in each market) to generate billions of dollars in incremental revenue from its mature and emerging online classifieds segments over the next few years. Many of SCH’s global peers are dominant in just one country, and one-to-three verticals in that market, yet they trade at substantial premiums to SCH, which reinforces the extremely favorable risk/ reward to owning shares of SCH at current levels.

Publicly traded companies mentioned include: Schibsted ASA (SCH NO), Google (GOOG), Facebook (FB), Ebay (EBAY), carsales.com Ltd (CRZ AU), Zillow (Z), HomeAway , Inc. (AWAY), Axel Springer AG (SPR GR), Rightmove PLC (RML LN), Trade ME Group Ltd (TME NZ)

Can you provide an overview of Schibsted’s business and the backdrop for the investment thesis?

Schibsted (SCH) is a global media company focused on printed and online news, as well as online classifieds. The company operates in over 25 countries. Its key print/news brands include the biggest newspapers in Norway and Sweden, and its mature online classifieds brands include Finn.no, Blocket.se, and Leboncoin.fr, and others (click here for more: SCH Brands). The presenter believes SCH’s management team is one of the “best in the world at building online classifieds businesses,” and has confidence in their ability to steer the company to a dominant position in a number of key markets and verticals within those markets.

At present levels, ~300 NOK, the presenter believes the risk/ reward is extremely attractive; the downside risk is minimal, and there is a substantial amount of optionality embedded in SCH’s shares. It trades at a substantial discount (EV/ EBITDA) to online classifieds companies such as Rightmove plc, Carsales.com, HomeAway, and other niche players (some of which are not even dominant in their respective verticals), but has enormous growth opportunity whereby it can potentially capture a dominant share of traffic (in one or more verticals) in upwards of 20 markets around the world over the next five years.