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.
Given the DIS deal, we’re not even bothering with Consolidated FOXA (although we did build an entire model); thus we are formally initiating coverage on New FOXA, where we feel we have an edge given our expertise in broadcast. Our thesis is similar to New DIS in that we feel there is going to be risk to near-term numbers – for example, our F’2018 EBITDA for New FOXA sits at $2.4B vs. the Street’s initial $2.7B (which doesn’t likely account for carve-out accounting – we expect updated numbers in a Form 10, expected to be out any day), but the growth from here should be fantastic. We have baked in every new sports deal (thank you, Eric!), which should ultimately be offset by significant growth in retrans and reverse (driven by said sports, and no longer weighed down by entertainment nets that are now with DIS).
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