Mood Media has little downside, lots of upside says Byron Capital

Byron Capital analyst Rob Goff says a recent slide in shares of Mood Media (Mood Media Stock Quote, Chart, News: TSX:MM) has derisked the story.

On Tuesday, just days after announcing that it might sell itself, MM provided fiscal 2013 guidance to shareholders.

The embattled company said it expects adjusted earnings before interest, taxes, depreciation and amortization will be in the range of $120-million to $125-million, from a topline of $545-million to $560-million.

CEO Lorne Abony said the acquisitions that have resulted in both an increased topline but widening losses are on their way to being integrated.

“We are encouraged by our progress in integrating these acquisitions and continue to believe that we are well positioned to deliver new and innovative services that will create compelling customer connections and sustainable improvements to our operating and financial results,” he said.

“We are also pleased with our ability to sustain momentum in our audio business consistent with positive trends that emerged in 2012. While we are experiencing a longer-than-expected timeline to consolidate our operations as competition law considerations delayed our integration planning, at the same time, we are seeing a slight decrease in capital expenditures and significantly lower restructuring and transaction expenses,” added Abony.

Goff says he is encouraged by Mood Media’s guidance, pointing out that it slightly exceeded his own expectations. He says the company’s move to higher margin video business hurt them in Q4, 2012 because of upfront equipment and installation costs, and this theme will continue into Q1, he believes.

But with a $25 million undrawn credit facility and $46 million in unrestricted cash, Goff says Mood Media has the necessary buffer to weather the transition. The Byron analyst says he sees limited downside given free cash flow support while potentially aggressive upside with demonstrated stronger financials. In a research update to clients this morning, Goff maintained his BUY rating and $2.10 one year target on Mood Media.

Shares of Mood Media closed today down 2.9% to $1.01.