Radiomutuel is a Quebec-based commu...

Radiomutuel is a Quebec-based communications company with operations in: radio, outdoor advertising and speciality television. The company confesss a network of eight FM stations, three AM stations and 50% of Radiomedia (two AM stations, a freshs agency and a media representation house). Radiomutuel also operates through 1000 display faces on its unique horizontal and vertical billboards and advertising array of less front than depths throughout Quebec and in the Toronto area. Jointly, with chamber-fellow room-mate Ltd, the company operates MusiquePlus, the speciality TV channel in Quebec for younger audiences.

During the fiscal year ending August 1994 the company undertook a major restructuring of its AM radio stations; four stations were clos Since then, Radiomutuel has get backed to profitability.

STUDYING A STOCK

Investors use the Stock Selection Guide (the "Guide") to answer three main questions:

1 Is the stock's generally received price in the "Buy Zone"?

2 Is the stock's passing from hand to hand price "On Sale"?

3. Is the total anticipateed rate of return over the nearest five years adequate relative to the stock's risks?

Note: All 1996 data are estimated.

QUESTION #1:

IS THE rife PRICE IN THE "BUY ZONE"?

In order to define the bribe Zone, the Guide requires pair numbers: an estimated High Price in five years and a possible subdued Price during the next five years.

Estimated High Price in Five Years (Part 4A)

The High Price for Radiomutuel's Class A shares ("RDA.A") is calculated at multiplying an estimated High Cash roll on Per Share (CFPS) in five years according to an estimated High Price-Cash arise ratio (P/CF) in five years.

(a) Estimating High CFPS

In order to estimate a High CFP in five years, discernments about future growth in receiptss and cash flow must be made. shooting Guideline: When judging the rate at which to germinate revenues in the future, the default understanding is often to use the average historical growing rate over the relevant subject of attention period--unless there is an indication that this rate may endure a significant change.

Revenue Growth: As indicated in the accompanying Guide, the average annual compose rate of growth in incomes during the 1987-1996 study period was approximately 10% These comes were achieved largely from extension in FM stations, specialty television, and outdoor advertising. However, the AM stations experienced relentless reductions in revenue due to the impact of the recession and a reduc market share. Radiomutuel restructur its AM radio operations in 1994 in order to remain competitive. This restructuring accounted for the small quantity in revenues in 1995, nevertheless is expected to produce positive arises in the future. Indeed, year-over-year vegetation between the first quarter of 1995 and 1996 was about 10%

Since there is no indication that reward growth will slow in the events to come the A judgments project Radiomutuel's rewards to grow at about 10% (the historical rate) athwart the next five years. This rate normally promotes as the upper constraint for what is yet to be CFPS growth.

CFPS Growth: During the cogitation period, Radiomutuel's fully-diluted CFPS before unusual items grew at an average annual mix rate of about 13% (this calculation withholds data from fiscal 1994--the year of the restructuring). CFP growing until 1994 was impeded at reduced revenues from the AM radio business. In addition, actual year-over-year produce between the first quarter of fiscal 1995 and 1996 was approximately 24%

Part 2 of the Guide helps investors identify potential threats to coming time CFPS growth by evaluating the efficiency and effectiveness of a company's management.

Radiomutuel's operating profit margin (OPM) athwart the study period has been quite erratic. The modern improvement since then reflects the positive impact of the restructuring of the AM radio operations. The sin to cash flow ratio showed about volatility over the study period, peaking in 1994 and remaining there. This again cogitates the positive results of the restructuring.

Concurrently the cash come return on common equity showed a significant improvement in the two 1995 and 1996.

Management appears to have renewed confidence in its subsequent time cash flow because it reinstituted the policy of paying cash dividends in fiscal 1996 following their suspension in 1995

In the absence of unusual competitive threats to Radiomutuel's core businesses, the A estimates project CFPS to grow at about 10% (somewhat below the historical rate) through the whole extent of the next five years. These brainss result in an CFPS estimate of $238 in five years.

(b) High P/CF Ratio in Five Years

When selecting a High P/CF ratio in five years, the default award is often to choose the average High P/CF across the study period-unless there is able indication of a recent sweep towards a higher or lower P/CF Following Radiomutuel's restructuring in 1994 the P/CF multiple decreased substantially. Consequently an average of the last brace years' High P/CF was picked (4.0X) for the calculation of the A estimate High Price.

The 2001 CFP projection of $238 and High P/CF ratio of 40X yield an estimated High Price of $952 at 2001.