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VIAB - Viacom

Guest JoelS

By Guest JoelS
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valueyoda Newbie

valueyoda

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Right, that is why a CBS/VIACOM combination should not be excluded. However, name your pick today, regardless whether it is FOX, CBS or VIACOM, and the degree of selling is silly. I am buying all these names aggressively. A rond of consolidation is now very likely.

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dwy000 Newbie

dwy000

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Right, that is why a CBS/VIACOM combination should not be excluded. However, name your pick today, regardless whether it is FOX, CBS or VIACOM, and the degree of selling is silly. I am buying all these names aggressively. A rond of consolidation is now very likely.

 

Same here.  If you listen to the Viacom call from this morning, management specifically addresses the current stock price vs asset value.  You can almost hear him getting upset and frustrated with how much value there is above the stock price.

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thefatbaboon Newbie

thefatbaboon

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VIACOM has the cheapest valuation, but also the biggest carrier risk. It makes sense for media companies to bundle less favorable channels with must-haves in skinny bundles. Therefore consolidation makes even more sense. A TWX/FOX merger is not going to happen anymore. I think that TWX would pull a TWX/CBS merger out of the hat to prevent that. Furthermore, a showtime/HBO bundle makes sense. TWX doesn't have a network, plus CBS could consolidate tv production and ownership of its programs. CNN would fit right in with CBS news.

 

FOX should look at Discovery. And Disney should even think about buying privately owned Hearst Media which in turns owns a minority stake in ESPS and A&E Networks. AMC Networks will see rating constrainsts now Mad Men & Breaking have ended, and should sell itself. Viacom has no logical merger candidate.

 

HBO/Showtime makes a lot of sense, but add Fox and TWX and you have the best sports bundle in the world (whether you decide to go over the top or not). I could live with Discovery, it blends in nice with Nat Geo, decreases some competition and allows the company to up the fees for Discovery as it is packaged under the Fox umbrella. I could not live with Viacom, that's going to be taken out at sucker levels (if Malone thinks there is value, why doesn't he buy it himself? Look at what he does, not what he says).

 

Malone (through LMCA/B/K) has actually been selling Viacom shares over the last two quarters.

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Guest Grey512

Guest Grey512

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Down to $16bn market cap?  This is a company that should have $3bn in free cash flow this year.  I get the concerns about long term but the knee jerk reaction by the market is excessive.

 

LTM cash from ops: $2.3b

LTM interest expense: $650m

LTM capex & acquisitions: $850m

LTM FCF (crude way to calculate, I know): $2.2b

Current EV: $30b.

 

If the company does $3b FCF this year like you said, that's a 10% yield. And if the company does not do $3b FCF this year but $2.2b, then that's a 7% yield. I guess the market is pricing this as a 0% top-line growth kind of company, which I agree is harsh. I guess I just don't fully agree with you that this is a steal. It's... alright, but it's not a steal to me. Maybe it's looking good in the current environment, but I'm somewhat convinced that over time (say 5-10 years) all companies of a certain size retrade to a doubledigit FCF yield. In other words, getting in at current levels, it's tough to bank on a "multiple expansion" kind of uplift. We're only left deleveraging and EBITDA growth as our return levers.

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dwy000 Newbie

dwy000

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Down to $16bn market cap?  This is a company that should have $3bn in free cash flow this year.  I get the concerns about long term but the knee jerk reaction by the market is excessive.

 

LTM cash from ops: $2.3b

LTM interest expense: $650m

LTM capex & acquisitions: $850m

LTM FCF (crude way to calculate, I know): $2.2b

Current EV: $30b.

 

If the company does $3b FCF this year like you said, that's a 10% yield. And if the company does not do $3b FCF this year but $2.2b, then that's a 7% yield. I guess the market is pricing this as a 0% top-line growth kind of company, which I agree is harsh. I guess I just don't fully agree with you that this is a steal. It's... alright, but it's not a steal to me. Maybe it's looking good in the current environment, but I'm somewhat convinced that over time (say 5-10 years) all companies of a certain size retrade to a doubledigit FCF yield. In other words, getting in at current levels, it's tough to bank on a "multiple expansion" kind of uplift. We're only left deleveraging and EBITDA growth as our return levers.

 

I think you're double counting the debt.  FCF is after debt service costs so it's appropriate to compare that to market cap (as opposed to EV).  The $2.2bn is a 12% FCF yield on today's price.  The company was the one to guide to $3bn for 2015 cash flow.  At that level it's a 16.4% FCF yield.

 

Obviously pre-interest cash flow yield vs. EV is lower but their debt is pretty much locked in at fairly attractive rates for a long time.

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Guest Grey512

Guest Grey512

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my calculation is CFO + interest expense - (capex + acquisitions) = 2.2b + 0.65b - 0.85b=2b (sorry I fudged the 2.1b number earlier). Thats FCFF (cash flow to the Firm) approximation. FCFF is relevant to EV. FCFF is what I tend to prefer. Its just faster to calculate, you just need 3 lines from the cash flows statement and 1 line from P&L (interest expense) and takes 5 secs.

 

So I guess I am not sure what you mean, apologies. The EV number (about $30b) is straight from consensus estimate.

 

That said if Viacom do get to $3b FCFF, that to me is still a 10% "current" FCFF/EV yield, which is fine and solid, but not a broad daylight steal. from this "current" 10% unlevered return I can get to levered (equity) return by arbitrarily piling on an extra 2% for say GDP or top-line growth and another 4% say for leverage, gets me to a possible 16% long-term annualised estimated return from buying stock in Viacom today. Not bad.. but frankly I would like a bit of a juicier return to take on the knock-on "cord cutting" / NFLX-related long-term risk. Anecdote: I have a kid and because we subscribe to Netflix, we have less need to seek out access to Nickelodeon.

 

BTW now that I think about I do see how they can get yo $3b FCFF..

 

Sorry for rambling, I just really enjoy thinking about this stuff..

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dwy000 Newbie

dwy000

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my calculation is CFO + interest expense - (capex + acquisitions) = 2.2b + 0.65b - 0.85b=2b (sorry I fudged the 2.1b number earlier). Thats FCFF (cash flow to the Firm) approximation. FCFF is relevant to EV. FCFF is what I tend to prefer. Its just faster to calculate, you just need 3 lines from the cash flows statement and 1 line from P&L (interest expense) and takes 5 secs.

 

So I guess I am not sure what you mean, apologies. The EV number (about $30b) is straight from consensus estimate.

 

That said if Viacom do get to $3b FCFF, that to me is still a 10% "current" FCFF/EV yield, which is fine and solid, but not a broad daylight steal. from this "current" 10% unlevered return I can get to levered (equity) return by arbitrarily piling on an extra 2% for say GDP or top-line growth and another 4% say for leverage, gets me to a possible 16% long-term annualised estimated return from buying stock in Viacom today. Not bad.. but frankly I would like a bit of a juicier return to take on the knock-on "cord cutting" / NFLX-related long-term risk. Anecdote: I have a kid and because we subscribe to Netflix, we have less need to seek out access to Nickelodeon.

 

BTW now that I think about I do see how they can get yo $3b FCFF..

 

Sorry for rambling, I just really enjoy thinking about this stuff..

 

Ah, okay , I get your calculation.  That makes sense. 

 

Maybe I'm a little less worried about the cord cutting concern.  Cable companies haven't been losing subs at anywhere near the rates the headlines would imply (certainly at rates well below the price increases agreed in the long term carriage contracts)- and many of the OTT start ups will be subscribing for content from the Viacoms and discovery's of the world.

 

Either way, a 16%+ return is pretty substantial for a company with the visibility they have for the next few years.  Even with the recent market drop I'm having trouble finding things with a return like that without substantially more hair on it.

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Gray Fox Newbie

Gray Fox

Posted
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**Gabelli Funds Shows 3.74% Stake in Viacom, Gamco Asset Management Shows 6.07%; Both Previously Showed 0.7%

 

Also buyback is re-starting now ( Oct).

 

Maybe VIAB is worth more than 7 or 8 times 2015 earnings ?

 

Extremely long VIAB

 

Gabelli's ownership has zero affect on what the company is worth.

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rishig Newbie

rishig

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Sorry, last message was cut off:

 

VIAB can do close to $6 in EPS in 2016. Up high single digits YOY.

 

Don't see why this can't trade for 10x 2016 EPS---- around $60. 17% upside in the near term.

 

Malone just hinted at cable/broadband/telco's being interested in the media content companies.

 

One thing I have learnt over the years is not to look at cheapness based on a single metric i.e. on P/E basis in this case. In terms of any EV metric, this is reasonably priced or may be slightly undervalued.

 

I had a very small position at $60 and then I averaged down to a relatively larger position relative to the initial size at $40. The easy money has been made. I sold out of my position at $52.

 

For upside from here out, Viacom needs to prove that its business model in the US is sustainable. MTV seems like a lost cause. It is being disrupted by short form videos on Youtube, Facebook, Snapchat (and whatever else teens spend their time on). The growth in affiliate fees cannot continue unless ratings go up at Nickelodeon and Comedy Central. So at best, Viacom executes and this is worth 10-12x P/E of $6. So, at best, it is worth $72. 40% upside from here in best case over who knows what time frame.

 

Lots of bad things can happen too - ratings slide, slowdown in affiliate fee growth due to loss in leverage at negotiations, ad revenue slide continuing etc. I don't see it a compelling buy at this point.

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nickenumbers Newbie

nickenumbers

Posted
Posted

I have been thinking about Viacom a little bit.  The PE, and PEG seem relatively reasonable.  Rev and Net Income are fairly stable.  They have a decent brand and they know what they are doing.  They are in a challenging market, and they are not a leader in it. 

 

Is there a case for upside on the stock price currently at $30.75?  I guess I am more in the minor interest/amused, but meh...

 

I can make stuff up, but I would like to hear if anyone out there has been thinking thru this one and if you have any ideas, conclusions, catalysts, angles, etc.

 

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