Wedbush Morning Call - Feb 13 2020 7:01AM

FTC Move Opens Up a New Chapter in the Big Tech vs. Beltway MMA Match

Good Q4, PT to $51 reflecting latest DIS offer

A solid set of numbers that reinforces the value of the assets going to Disney. Management comments also highlight how new Fox will be very much focused on sports and news, a much lower risk segment of media in our view. Despite the existing Fox Q4 beat, we are lowering our new Fox FY19 EPS from $0.95 to $0.83 on lower TV forecasts but our FY20 EPS just comes down $0.02 to $1.01. We are lifting our existing Fox PT from $48 to $51 reflecting Disney's $38 offer plus a $13 target for new Fox. As we...

Q3 EBITDA broadly in line, cable outperforms

A solid set of numbers that shouldn't lead to any change in the strong interest the company has from both Disney and Comcast. Total EBITDA fell 2% vs. a 1% consensus decline. Cable Networks were well ahead, with 16% EBITDA growth (cons. +12%) while Film was broadly in line (-23% on tough comps) and TV EBITDA fell short at $78m vs. the $119m cons. TV always faced a tough comp with last year's Super Bowl but was additionally impacted by three fewer NFL broadcasts and lower NFL ratings (this is mor...

Media: Five takeaways from Sling's sub count release

Dish Network yesterday disclosed Sling customers for the first time in two years, saying the service was taken by 2.2m subscribers as of the end of 2017. If we triangulate this data point with Fox's comment that it had almost 4m VMVPD subs at the end of Q4 vs. almost 3m at the end of Q3 and assume that 1) July 2017 reports that Sling had 2m subs were accurate and 2) Fox is taken by 60% of Sling subscribers and is carried on all other VMVPDs, then we come out with five key conclusions.

Q2 costs drive miss; impressive VMVPD growth

Despite difficult comps with last year's World Series and political advertising, revenues were ahead (+5% vs. +4% cons.) but higher than expected costs drove an EBITDA miss (-28% vs. -23% cons). EPS of $0.42 was ahead on tax. The most significant stand out was the 12% increase in domestic affiliate fees, fuelled by higher priced carriage on VMVPDs. Fox now sees nearly 4m VMVPD subs in the US vs. nearly 3m last quarter, up ~33% QoQ. All in, we now estimate total US pay TV sub declines may be impr...

Upgrading Fox to O/W as best way to play Disney

We are increasing our Fox PT from $31 to $49 as we factor in the Disney deal and new tax regime. We have valued the company on the basis the Disney/Fox deal is approved but the Sky/Fox deal is not. Fox's PT is driven higher by 1) applying Disney's higher multiple to incoming Fox assets, 2) buy backs at new Fox due to FCF generation and lower than anticipated debt, 3) cost of debt reduction opportunities, 4) synergies and 5) an attractive multiple for new Disney which now has the scale to offer a...

DIS/FOXA deal makes strong strategic sense

Deal terms are broadly in line with expectations. At the current DIS share price, the implied value of the assets being acquired is $29.50 per Fox share. However, what we did not know was that an asset value step up at new Fox would lead to an annual tax shield on $1.5bn of taxable earnings for the next 15 years. This means new Fox should warrant a higher multiple than the 7x EBITDA we had in our SOTP. Lifting our new Fox multiple to 8x increases the total valuation for existing Fox to $40 per s...

SOTP analysis implies $39 per share value

CNBC yesterday reported that Disney and Fox were on a "glide path" to announcing a deal on Thursday after Comcast dropped out of the bidding war on Monday evening. In this report we attempt to reconcile the various data points reported by the press to determine a potential take out value for Fox. Overall, our analysis, which admittedly has a lot of assumptions, comes out at a takeout price for Fox of $39. Clearly this provides decent upside from current levels and we do believe the likelihood of...

Q1 - Management touts existing scale

Updating Fox, CBS and Disney models