With all the attention on DIS’s DTCI segment the last several mos., we thought it time to switch gears to the Parks – esp. after spending nearly 12 consecutive hours with DIS mgmt. and ~50 of our closest buy-side and sell-side friends as we toured Star Wars: Galaxy’s Edge at the Disneyland Resort in Anaheim, May 21-22. By the way, this Land doesn’t officially open to the public until 5/31.
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This morning (5/20), DISH announced that it has agreed to purchase SATS’ Broadcast Satellite Service (BSS) business for ~$800MM of DISH stock that will be distributed to SATS shareholders. We provide some quick information and takeaways about the deal below.
While the bulk of what we heard during the FOXA Investor Day (5/9, NYC) was positive - i.e. the partnership with TSG, the cadence of retrans/reverse, comments from Roger Goodell & Rob Manfred, the 2.5-3.0x gross leverage target, & no random M&A – we were not quite sure how to interpret the “$200-250MM of investment spend” for F’20. Our sense is that ~75% is incremental, specifically in TV. Separately, we had time to review our Cable ests. and note the $100MM EBITDA beat in FQ3 was on a lack of UFC & UEFA rights (which we didn’t flow thru). While this is a partial positive offset, we still reduce our F’20 EBITDA by 2.5% (to $2.608B from $2.671B vs. Consensus of $2.693B) and F’20 FCF by 2% (to $1.657B from $1.689B vs. Consensus of $1.938B).
The hottest names this week were CMLS (1,093bps better than the S&P), MDP (453bps), CABO (448bps), BBGI (292bps), and CHTR (231bps).
This morning (5/14), DIS and CMCSA issued a joint release announcing an agreement on Hulu’s “Future Governance and Ownership.” DIS CEO Bob Iger spoke at an investor conference at 10am, and CMCSA CFO Mike Cavanagh followed at 10:40am. We provide some highlights below.
While rev. trends are improving as MDP successfully integrates TIME, the question is what’s next? Mgmt. is investing in growth opportunities for the future, but we don’t know how much now (or in F’20). Taking these investments with the delay in synergies and guide down in F’19 EBITDA (to $700-710MM from $720-750MM), as well as the walk back from $1B in F’20 LAST qtr., and we’re just left with uncertainty. For now, it sounds like we (and the Street) are still too high, so we’re lowering our F’19 EBITDA by 3% to $705MM (from $729MM) and our already below prior Consensus F’20 by 11% to $800MM (from $900MM). As a result, we’re reducing our PT to $58 from $62. We maintain our Peer Perform rating.
SSP reported Q1 results on Friday (5/10). Unfortunately, we were not able to update our model then as we did not have the various pieces. Specifically, mgmt. alluded to ‘18 quarterly pro formas that include Cordillera + two stations from GTN as if the deals had closed on 1/1/18 – all of which were disclosed in a filing that actually came out today (5/13) at around noon ET. After updating our ‘18 pro forma base, incorporating the Q2 guide, and lowering our National EBITDA to fully incorporate the impact of Court TV, our 2019 PF rev. and EBITDA go down by 1% and 9%, respectively. We let this flow through to our PF ‘20 ests., which didn’t really impact revs, but reduced our EBITDA by 3%. Our blended PF 19/20 FCF/sh. est. moves to $1.94 from $2.10. As a result, our YE 2019 PT falls to $23 from $25.
CABO’s print was messy given: 1) the Clear Wave acquisition closed during the quarter; 2) it’s clear that not every analyst included Clear Wave in his/her ests; and 3) there were multiple significant adjustments to the reported adjusted EBITDA. Cutting through it all, ultimately, we’d say CABO missed expectations for both rev. and EBITDA on an apples-to-apples basis. On the bright side, HSD net adds were well ahead of expectations, and the improvement sounds sustainable given CABO’s pricing and packaging changes. We adjusted our model for Q1 results, but ultimately our EBITDA estimates (which were only adjusted for share-based compensation) remained relatively unchanged.
The hottest names this week were SBGI (3,969bps better than the S&P), CCO (829bps), OUT (691bps), TGNA (660bps), and FOXA (501bps).
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