Morningstar | Formula One Remains the Premier Motorsport Around the Globe; Launching Coverage with $29 FVE. See Updated Analyst Note from 28 Mar 2019
We are launching coverage of Formula One Group with a narrow-moat rating, negative moat trend, and $29 fair value estimate. Our $29 fair value estimate for Formula One Group implies an enterprise value of 26 times 2019 EBITDA and 7% free cash flow yield.The Formula One Group controls the exclusive commercial and promotional rights to the FIA Formula One World Championship series and the monetization of those rights is the primary business of the group. The firm is responsible for development and promotion of the Formula One race series in concert with its three partners: the FIA (the regulatory body), the teams that participate in the series, and the series' commercial partners.
Formula One Group is a subsidiary of Liberty Media Corporation, which purchased the firm in January 2017. The Formula One stock is a tracking stock for the assets under Formula One Group with Liberty Media. These assets include the Formula One rights, a 15% stake in the Braves Group, another Liberty Media subsidiary, a 34% stake in Live Nation, and several minor stakes in public and private firms.
The revenue and operating income for the group is derived solely from the Formula One rights. The Formula One rights provide three main sources: hosting fees from race promoters, the sale of broadcasting rights to free and pay-TV networks around the world, and sponsorship and advertising revenue for the series and individual races. These three sources generated over 81% of 2018 revenue for Formula One Group.
Over the past 20 years, the sport has expanded its reach further outside of its traditional stronghold of Western Europe and the U.K. by adding races in East and Central Asia, the Middle East, and Russia. Of the 21 grands prix on the 2019 schedule, 12 races will be held outside of Europe with six of 12 debuting in 2000 or later. These newer races pay a higher hosting fee on average than the older grands prix, and national or local governments subsidize many of the newer races.
Liberty Media owns interests in subsidiaries and other companies which are engaged in the media and entertainment industries. The company's businesses and assets include its consolidated subsidiaries Sirius XM Holdings Inc., which transmits music, sports, entertainment, comedy, talk, news, traffic and weather channels, as well as infotainment services, and the Braves Holdings, LLC, which is engaged in television and radio broadcasting, ticket sales and advertising and corporate sponsorship, and its equity affiliate Live Nation Entertainment, Inc., which is a live entertainment company. The company also owns a portfolio of minority debt and equity investments in media companies, including iHeart Media, Inc.
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Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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