Friday, April 21, 2006

Thomson SA

In January, I had highlighted Thomson SA (TMS) a company that had been featured in the 2005 Barron's roundtable by Oscar Schafer, had performed rather poorly, but was undergoing a massive re-structuring.

Thomson link

I had highlighted the improving operating margins, and in particular, the improving free cash flow characteristics of the business.

In this morning's WSJ, there is an article which suggests that the company's management is growing frustrated with the market's assessment of its value.

Thomson WSJ link (subscription required)

Whether a management led LBO (with Silver Lake Partners et al) transpires or not, the improving FCF characteristics of this business suggest that the stock remains cheap, in my opinion. There company possesses considerable intellectual property abd as described in the article, is a one-stop shop for media and entertainment companies.

Thomson's set-top box business parallels that of Scientific Atlanta but has been somewhat erratic. It appears that new HD boxes have rolled out in March and are finding acceptance with customers such as DirectTV and Canal Plus. The growth of European HD Pay TV services which is in its early stages will be critical to Thomson's profitability.

The valuation parameters suggested in the WSJ article indicate a value of $23.50-$24.70.

LBO speculation remains rife and the precision of the WSJ article leads me to believe that there may be some validity to the speculation. Who knows? Whether a buyout occurs or not, the fundamentals are improving as the company's focus on cost control and execution intensifies.

I. my family and clients have a position in Thomson.


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