OREANDA-NEWS. July 01, 2010. During an audit of Channel One, regulators found that the 12% commission the channel pays to the sales house Video International (VI) is comprised of only 1% payment for advertising and 11% for consulting services. VI currently sells ads for a number of channels, including those of CTC Media, and its market share exceeds 65%. Under a law passed in late 2009, from the end of 2010 no sales house will be permitted to sell ads for more than 35% of the market, reported the press-centre of OTKRITIE Financial Corporation.   

View: The news supports rumors that the new law could be interpreted in such a way that VI will de facto retain a dominant market share under the new law, as long as it categorizes its activities as consulting rather than as sales of advertising. This is positive news for price increases on the TV advertising market.

Valuation: CTC trades on a 2010 EV/EBITDA of 10.8x and 2011 EV/EBITDA of 7.8x, assuming 5.0% growth of TV advertisement prices in 2010 and 15.6% growth in 2011.

Action: We reiterate our BUY rating and expect the stock to react positively to the news.