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TheStreet Open House

SFX Entertainment a Buy Despite Conference Call

NEW YORK (TheStreet) - The recent weakness of electronic music culture (EMC) roll-up SFX Entertainment (SFXE) is a buying opportunity, according to analysts at Jefferies. That recommendation comes a day after the company's shares tumbled as much as 20% during a highly unusual conference call led by Chairman and CEO Robert 'FX' Sillerman.

The Definitive Account of SFX Entertainment's Conference Call

CEO antics aside, good things appear to be developing at SFX Entertainment, which may allow the burgeoning music festival powerhouse to impress Wall Street in 2014. "Near-term weakness is a buying opportunity. It was a good Q. With demand for tickets still strong, SFX is planning new festivals and expanding existing festivals into multi-day affairs," Jefferies analysts said.

SFX Entertainment's "weakness" is likely the result of a profanity laden conference call that involved inquiry by investors and analysts into the mental health of CEO Sillerman, and the company's alleged "sh__ty deals."

Given SFX's 11% tumble on Thursday in the wake of the company's conference call, some investors appear to have been put off by the antics. SFX's conference call was held in Miami, where Sillerman and other top executives are attending an EMC industry conference.

Anyone investing in a company founded by Sillerman, however, should understand that the SFX CEO isn't cut from an ordinary Wall Street cloth. "[If] you've ever heard Bob's investor calls, he does them very differently from other CEOs," Ed Tagliaferri, a SFX Entertainment spokesperson said in a Thursday e-mail.

Read TheStreet's account of SFX's conference call for a better sense of the company's share price weakness on Thursday. 

Conference call aside, Jefferies notes that SFX and its CEO Sillerman are delivering on the company's business model, signing marketing partnerships at a fast clip. Those partnerships could translate to strong earnings for SFX and could be indicative of a similar strategy Sillerman pursued when building LiveNation (LYV) into a multi-billion dollar entertainment powerhouse.

At first blush, fourth-quarter results disclosed by SFX underwhelmed analysts. "Pro forma EBITDA of $4MM missed our $14MM. Management turned down the sponsorship deal because a competitive brand offered a more lucrative deal, which wouldn't be booked until 2014,"Jefferies said. "[D]espite the 'miss' we believe it was a solid quarter for SFX, with both the live-events and sponsorship businesses operating on plan."

SFX Entertainment said it had booked $40 million in EBITDA in 2014 from marketing and sponsorship partners including AB InBev and Clear Channel and two yet-to-be-named parties. That disclosure exceeded Jefferies' forecasts for the quarter and represented over 50% of the investment bank's full year estimate of $74 million in pro-forma EBITDA.

"I fully expect to have two more significant marketing partnerships," CEO Sillerman said of possible 2014 sponsorship announcements. "If that is the case, we will blow away the $40 million EBITDA estimate for this area," he added. Sillerman also alluded to a partnership deal reaching eight figures that SFX had turned down.

Jefferies, which recently was a book-runner of a $220 million SFX debt offering, rates SFX a 'buy' and holds out a $17 a share price target.

SFX closed Thursday trading at $6.81 a share, a post-IPO low.

In October, SFX priced a $260 million IPO at $13 a share. The stock has since tumbled nearly 50%, as investors wait to see whether Sillerman can execute SFX's business model.

-- Written by Antoine Gara in New York

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