Goldman Sachs Raises Price Target But Maintains Neutral Rating On Focus Media (FMCN)

Goldman Sachs is out with a note, where it maintains its “neutral” rating on Focus Media (FMCN); it has also raised its target price from $19.00 to $21.00. FMCN has recently divested its Internet advertising business by selling its remaining 62% stake in Allyes for $124mn in cash. The deal is expected to close in the third quarter and will include iResearch and other subsidiaries. Analysts at Goldman stated, “1) Strategically, we believe that Allyes lacked competitive advantage versus integrated global ad agencies such as WPP, and Allyes has not fully leveraged its ad delivery platform in the manner that Focus initially hoped. 2) Allyes is a lower margin business than the rest of Focus; its gross margin is in the low-20%s, vs. 70-75% for LCD, 40-45% for Framedia and 30-35% for in-store. 3) Allyes is not very cash generative; accounts receivable days for Allyes are 150-180 days, vs. 90-120 days for Focus’ core business.” The analysts at Goldman Sachs also added, “By excluding Allyes, we revise down Focus’ revenue/non-GAAP operating profits/non-GAAP earnings by 10%/2%/1% in 2010E and 23%/5%/2% in 2011E, and increase Focus’ cash balance.” Shares of FMCN closed yesterday at $18.13.