The hottest names this week were ATUS (245bps better than the S&P), DISH (237bps), WWE (182bps), AMCX (92bps), and CBS (5bps).
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With CMCSA earnings coming up next week (1/23), we provide our thoughts on the numbers, sentiment and what to do with the stocks into the print. Please see the Full PDF link below for our detailed 30 page slide deck. OK
We learned from an 8-K filed this morning that FOXA is raising debt to fund the $8. 5B dividend it will pay DIS upon the close of the FOXA deal.
This note details our conversations with London investors, with the biggest surprises being: 1) The skepticism regrading New DIS – particularly the value of streaming vs. long-tailed content. That said, should uncertainties become more certain, this is the one most still want to buy. 2) The tremendous pushback on CMCSA – all because of Sky. And 3) the number of requests for our ATUS and OUT models (which must be positive signs, no?). PERHAPS THE BIGGEST TAKEAWAY IS HOW IMPORTANT MANAGEMENT TRANSPARENCY AND CREDIBILITY HAVE BECOME – above and beyond the numbers and the balance sheet.
Despite the government shutdown that was supposed to bring the entire country to a screeching halt, it had no impact on FOXA’s ability to hit us with the long-expected Form 10 after today’s close (recall the timing was originally late-Fall 2018). Although we didn’t have time to comb through the 200-page release in detail yet, we would like to provide a few takeaways on the PF F’18 numbers: 1) Revenue was in-line at $10.2B, with 48% from affiliate fees, 45% advertising, and 7% other; 2) EBITDA was ahead at $2.5B vs. our $2.4B – but Cable was lower by ~$100MM at $2.3B on higher costs than expected, which was more than offset by Corp. coming in ~$175MM better at ($195MM); and 3) Debt is roughly as expected at $6.449B vs. our $6.5B, wihle cash is a bit lower at $1.749B vs. our $2.5B (from the 10/5/18 filing). All in all, nothing too surprising so we’re pleased with the first glance.
Eric, Stephan, Se and I are reintroducing our WHAT’s HOT WHAT’s NOT weekly wrap up – this being our first edition from Wolfe Research.
It’s no secret that the RSN sale is not going swimmingly. While the press is reporting significant interest (i.e. 40 bidders in Round 1), the price tag seems to be well below what we would call DIS’s “acceptable range” so far. Of course, there is still quite a bit of runway left to get a final deal done – so it’s not ovah until it’s ovah. In this note, we dive deep into the RSNs – with a detailed history, financial snapshot and potential valuation. We also look at our coverage group to see who has the most interest AND ability to potentially transact. We have 2 over-riding conclusions: 1) While DIS is likely to lose ~$9B of deal value, the RSN sale does NOT materially impact PF synergies, PF growth, or DIS’s ability to de-lever. 2) We view the Yankees as the most likely buyer of YES ($5-6B) and SBGI as the most likely “winner” (or not) of the remaining 21 RSNs (~$11B).
We went straight from our launch (check out our 252-page slide deck – which was NOT an easy feat) to a whirlwind of marketing – hitting NYC, NYC (not a typo), Boston, the Mid-Atlantic, and more NYC. Ahead of us is CT, the West Coast, NYC (again, not a typo), and then Europe (Cheers!). The biggest surprises from our first set of meetings have been: 1) The fact that just about every conversation has begun with New DIS and New FOXA (there are way more bulls than bears). 2) There appears to be significant incremental interest in OUT and ATUS. 3) There appears to be significantly more concern re. CBS & VIAB. 4) No one has pushed back on our “downgrade” of DISH (Peer Perform). And 5) Local isn’t a huge focus due to macro and leverage. BOTTOM LINE: We feel incrementally positive on New DIS, New FOXA, CMCSA, ATUS and OUT; we are worried that our positive call on VIAB might take longer to play out.
There are two camps on this stock with little in between – the longs LOVE it, and the shorts love to HATE it. On the short side, we hear – 1) the stock is up +134% YTD vs. +1% for the S&P 500. 2) All the BIG TV licensing deals were already announced – FOX and NBCU in the U.S. 3) Nothing else will move the needle. 4) Ratings softened the last 6 months. And 5) attendance is down at live events. The only point we think really holds any water is the stock performance (one of the best in ’18). Yes, ratings and attendance have been down a bit, BUT ratings don’t impact the business model AT ALL – there is no advertising, AND licensing revenue is now locked in thru 2025. Mgmt. is also aware of how to fix the problem in attendance, which by the way, is only 5% of ’20E EBITDA. Oh, and we’d mention that there could actually be upside to the “BIG” TV deals. First, we don’t think investors truly appreciate the U.K. and India deals – the 2nd and 3rd largest markets respectively, with a U.K. announcement coming any day now and India in H1’19. And while these two were called out by mgmt., we’d remind investors that “7” key deals were signed around the same time 5 years ago. If history repeats itself, we could see AT LEAST $65MM of incremental high margin licensing revenue from these key deals (on top of the $548MM guided for ’20E, which incl. ONLY the U.S. deals). And speaking of international – there’s more to that story. We haven’t even mentioned the WWE Network, the co.’s successful streaming DTC service with 1.6MM paid subs of which only 400k are international – yet of the 25B YouTube (and other platform) video views a year, 80% are international. We’re not saying international subs are going WAY higher immediately, but the opportunity is tremendous. We were masochistic enough to perform a bunch of scenario analyses on this one and we honestly just feel there is significantly more upside to numbers than downside risk. We initiate WWE with an Outperform and $95 price target.
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