NWSA - News Corporation

[Cunninghamew]

Gabelli Note

 

NWSA_8-26-13.pdf

[jay21]

Pretty good note on VIC: http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/102751

 

I might start digging into this one.

[jay21]

Deutsche Bank deep-dive on the new News Corp. Looks quite attractive  8)

 

This  was good thanks! Some highlights:

 

We estimate FY13E EBITDA of $0.990b, -10% Y/Y, and FY14E EBITDA of $0.986b, nearly flat Y/Y. We expect a 5-year EBITDA CAGR of 1% as secular-driven declines in Australia and U.K. newspapers is offset by growth at REA, Fox Sports Australia and The WSJ. We forecast FY13E EPS of $0.18/NWSa share and FY14E of $0.18.

 

We have used a 10.0x multiple for Dow Jones due the WSJ’s strong international brand & premium content, above average exposure to national

(below average exposure to classifieds), attractive demos, and best online monetization, valuing Dow Jones at $2.7bn. NWS acquired Dow Jones for $5.7bn in December 2007 and recorded an impairment of $2.8bn in February 2009, resulting in a net value of $2.9bn, broadly in-line with our valuation.

 

REA Group. Our SoTP includes NNC’s 61.6% interest in Realestate.com.au valued at $2.5b based on the current market price of A$29.56. Note that DB’s Australian media analyst Dominic rates the company Hold with a A$20 target.

 

Dilutive acquisitions are a key risk. To the extent management decides to deploy its $2.6bn of cash in dilutive acquisitions, this would offset at least some of the comfort investors should have from the healthy capitalization at separation. M&A risk is particularly valid for NNC given a spotty deal track record the past 5 years or so.

 

My thoughts:

 

So the three biggest pieces of the company are the WSJ, REA, and cash.  WSJ might be one of the few papers out there that can actually grow, but this may be an inverted risk/reward situation.  Either you get small steady growth or pretty hurtful declines.  I don't know much about REA, but it is extremely expensive and might be priced to perfection.  Cash is cash, but I have no idea what management will do with it.  If this was Malone controlling the company, it would probably go towards buy backs or an accretive acquisition.  But, it seems like consensus is that management may do something dumb with it.  So this is a pass for me.

[no_free_lunch]

I agree with the concern over M&A.  I noticed that DB valued dow jones at about $2.5B, whereas it was purchased for around $5B in 2007.  I know this is a difficult and fast-changing industry but paying a 67% premium doesn't seem like the way to build shareholder value.

[Hubris]

I think Murdock with the smaller size will be dangerous. He can be really good and Murdock can create shareholder value. Nobody ever expected him to split News Corp in the first place. I think people might be judging the future based on the past. Murdock actually spun the entity off with a buyback plan in place (500M). He could also do a major acquisition at these low interest rates with the balance sheet.

 

Amplify is also hiding some of the earnings power of the company. Amplify running break even or making money could be a major catalyst for the stock.

 

If everyone thinks its crap and everyone doesn't want to own it, it's a buy in my book.

[cobafdek]

It's been about a year since the spinoff, and since my WSJ subscription lapsed.

 

I still enjoy reading every issue, but I do so on-line without any subscription.  I've realized the reading is limited to the A section (news and opinion) and Personal Journal.  The Marketplace section and Money/Investing section are mostly only scanned.  Bottomline is that the impact of the WSJ for my investing is only marginal.

 

I looked at the latest 10Q and see no growth in revenues or EBITDA, except possibly in the Cable division which, however, a much smaller contributor to revenues than News and Circulation.  Cash has increased, and perhaps along with it the risk of a dumb acquisition.

 

Anyone else with an experience similar to mine, and are you still subscribing or will renew?

 

Is Longleaf's investment dead-in-the-water?