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Coverage Initiation: Nielsen Holdings N.V.
Value Line has initiated coverage of Nielsen Holdings N.V. (NLSN) in its flagship product, The Value Line Investment Survey. Nielsen is a worldwide information and measurement company that provides its clients with information and analysis about consumers and consumer behavior. Nielsen aligns its business in two segments: What Consumers Watch, and What Consumers Buy. The company has a presence in more than 100 countries and employs about 35,000 people worldwide. It has headquarters in the Netherlands and New York City.
Nielsen’s initial public offering occurred on the New York Stock Exchange in January of 2011. The company had a secondary offering in March of 2012. Its stock was added to the S&P 500 index in July of 2013.
Nielsen is well known for its ratings of television programs (indeed, the company tallies these ratings in the United States and 32 other countries), but the company does much more than that. In 2012, Nielsen’s “Buy” segment contributed 61% of revenues, and its “Watch” segment generated 36% of revenues. (The other 3% came from Expositions, which produces business-to-business trade shows and conference events. Nielsen sold this business in June of 2013 for $950 million.) The company’s top five clients in each segment have a relationship with Nielsen that averages more than 30 years.
Nielsen expands its operations both organically and through mergers and acquisitions. The company is looking to Africa, China, India, and Mexico for geographic growth opportunities. Nielsen is also developing services; for example, the company is working with Twitter to measure consumer interaction with television programming and social media. Nielsen has been acquisitive, too. The most noteworthy deal is the company’s agreement in late 2012 to purchase Arbitron (ARB) for about $1.3 billion in cash. Management expects the profits from Arbitron to outweigh the income that Expositions generated (excluding a $303 million aftertax gain on the aforementioned sale). However, the transaction requires regulatory approval, and has been held up by the U.S. Federal Trade Commission. Accordingly, there is some uncertainty about whether the deal will go through.
Nielsen is generating cash. In January, the board of directors initiated a common dividend. In July, the board raised the quarterly payout by 25%, to $0.20 a share. This provides a decent dividend yield for income-oriented investors. The company also has a $500 million share-repurchase program. Even so, the company’s finances have room for improvement, and its balance sheet is highly leveraged.
The company faces some challenges. For one, how does it measure the viewing audience for TV programs when not all viewers are watching on televisions? Today, people can watch programs over their computers or other electronic devices. As a result, Nielsen must change its measurement methods to account for new technology. There are always demographic shifts to deal with, too. Moreover, the state of the economy can affect Nielsen’s business. The company has struggled in Europe over the past four years. In addition, Nielsen has foreign currency exposure. In 2012, 48% of its revenues were denominated in currencies other than the U.S. dollar. In fact, the company took a $12 million charge in the first quarter of 2013 because Venezuela devalued its currency. Finally, investors should be aware that, as of June 30, 2013, a private equity group owned 41% of the company’s common stock. This owner has already had two public offerings of Nielsen’s common stock, thereby reducing its stake from 65%, and if it decides to sell more of its holdings, this could put pressure on the stock price.
For a more thorough look at Nielsen’s business prospects, and the particular investment merits of its stock, subscribers should examine our full report in The Value Line Investment Survey.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.