During its full-year 2012 report, Salem announced that it would buy back about $212.3 million in outstanding debt that was scheduled to become callable in December of 2013. Since the debt carried an interest rate of 9.63 percent, this will free up a significant amount of capital for the company to finance its other recently announced move. It is worth noting that Salem will pay a premium of roughly 6 percent for this debt: Whereas it would have called the debt for about 104 percent of par value in December, it has offered current holders over 110 percent of par value for the duration of the current tender offer.
Salem Communications Corp (NASDAQ:SALM) has also announced that it will boost its per-share dividend by 1.5 cents to 5 cents per quarter. This change will go into effect in the current quarter and reward shareholders of record as of March 25.
What May Happen Next
These two moves look likely to provide ample support for Salem’s share price in the coming months. Since the twin announcements, Salem has already jumped by more than 11 percent and now sits at a five-year high. With virtually no short-term resistance points, the company’s stock is primed to explode even higher. While it is difficult to quantify the magnitude of the move that the company stands to make, investors are clearly happy with the company’s improved performance. Over the coming quarter, a further rise of 25 percent would not be out of the question.
Long-Term Industry Outlook
Despite operating in a competitive industry, Salem Communications Corp (NASDAQ:SALM) looks well-positioned to deliver long-term value for its shareholders. Its religious, conservative niche has grown substantially during the past decade and continues to increase in size. By focusing on religious programming as well as explicitly political commentary, Salem looks likely to avoid the stigma that some fans of “serious” journalism have attached to News Corporation and others in the political-entertainment business. While the company’s ideological viewpoint will ensure that its audience remains somewhat self-limiting, it goes without saying that its minuscule $183 million market cap is indicative of tremendous promise. In other words, future growth is all but assured.
In this light, Salem Communications looks like a strong buy. It has recently increased its dividend and looks poised to refinance its long-term debt in an effort to increase its cash flow. In fact, investors who buy into Salem Communications Corp (NASDAQ:SALM) at these levels may be setting themselves up for exciting medium-term gains.
The article Broadcasting Company Looking Attractive After Refinancing originally appeared on Fool.com and is written by Mike Thiessen.
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