After meeting with News Corp management, Macquarie is reiterating their positive stance on the company, and highlighting the enormous revenue opportunities ahead.
Macquarie’s Ben Stretch:
Retransmission: multi-year opportunity and driver. A quick review of our model shows that in 5 of the last 10 years, the TV segment did ~US$1bn of EBIT. In FY09, EBIT was just US$174m. The network business and local stations were in trouble and going the same way as newspapers – or were they? Now, could it be that the market remains simply wrong on two of the most fundamental assets within the News Corp stable? The current stock valuation certainly implies they have little to zero continuing value. That assumption is, by the day, looking increasingly incorrect.
Most interesting is the fact that the firm expects the company to reap $1 billion from potential retransmission fees:
Schedule this: US$1bn+ of annually recurring EBIT? Management continue to aggressively pursue the development of the retransmission revenue stream. With around 40% of affiliates owned and operated, success at $1/sub/mth equates to ~US$480m of 100% EBIT margin revenue. Once non-owned/operated stations are considered, we believe US$900m-$1bn is the ultimate, realistic opportunity. And that’s at the US$1/mth rate – what most consider just the starting point (just check in with Chase for his view on that!).
Many question whether or not News Corp will be able to make the above payment model work, but given the shares are near 52-week highs, investors are clearly siding with Mr. Murdoch’s strategy. Macquarie thinks they’ll make further money doing so.
(Via Macquarie, There’s spring in the steps of New York, Ben Stretch, 19 April 20010, Macquarie has a $24 Australian dollar target price on News Corp shares.)
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