Twenty-First Century Fox Inc

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Twenty-First Century Fox Inc Valuation BMGT443 LOVEPREET A, BASMA H, ADAM P, JAKE L, KAYLA S, JODY M, CAROLINE D

Transcript of Twenty-First Century Fox Inc

Page 1: Twenty-First Century Fox Inc

Twenty-First Century Fox Inc ValuationBMGT443LOVEPREET A, BASMA H, ADAM P, JAKE L, KAYLA S, JODY M, CAROLINE D

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The EIC Framework

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Economy With a beta of 1.049,

FOXA is very well correlated with market performance

With a positive economic outlook, It is necessary to assume that FOXA will generate future value

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Industry With the rise in

production budgets and television advertisements, the industry performance is expected to grow

Cumulative ROE sits at 24%. Highly Attractive

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IndustryThreat 

OfNew

Entrants

(Med) 

Competitive Rivalry(High)

Buyer Power(High)

Supplier Power(High)

Threat of Sub.(Med)

Netflix Online Video Business

Advertisement Consumers

Networks Other Platforms

Actors Show Content

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Company ROIC is 12.85%and WACC

is 7.5%. Positive spread

Maintain an ROE of 24%

High tide raises all ships

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Historical Analysis

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FOX's ROIC  Overall EOY ROIC increased 27.8% from 2012 to 15.3% in 2016

Decreased by 4.3% in past year Main driver is EOY pretax ROIC

Increased from 15.9% in 2012 to 21% in 2016 Increased 32.5% from 2012 to 2011

All three efficiency drivers decreased Positive effect on ROIC because FOX has been more efficient with money generated from

sales to pay SGA and depreciation costs Gross Margin decreased from 1.032 to 1.022 between 2012 and 2016 Operating margin positively increased from .188 in 2012 to .219 in 2016 Cash rate increased from 24.5% to 27.2% between 2012 and 2016  Tax rate increased by 115%, drastically lowering ROIC in past year

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CFI FCF decreased between

2012 to 2016 Increasing working

capital from 2012 to 2016 FOX investing significant

money into working capital FCF spiked in 2015

(142) investment in working capital

Increase FCF for that year (anomaly)

Excess cash increased 2015 to 2016 FOX must have invested

large amount of excess cash into new projects (decreasing their CFI)

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Industry ROIC Tree

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Industry ROIC Tree

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CFI Debt increased from

19 in 2015 to (-686) in 2016 FOX investing capital

into new projects FOX buying back

millions of shares Negative # shares

issued in past 5 years # shares repurchased

increased from 4,589 in 2012 to 4,904 in 2016

Reduced CFI from 6,587

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Valuation

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As-is Valuation

• Current Share Price: $26.66• Model Share Price: $26.40

• Predict that revenue growth will decline, based on historical figures and current events

• EBITDA and depreciation increase to fit 23.3% margin

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Bull,Bear and Target Valuations

Bull Valuation –Model Share Price is$ 45.51 Growth will decrease less drastically  Depreciation and EBITDA will remain the same

Bear Valuation – Model Share Price is $16.55 Large growth will decline quickly  EBITDA will decrease significantly   Depreciation will increase

Target Valuation – Model Share price is$31.50  Slow growth decline EBITDA will decrease Depreciation will increase

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ROIC Chart

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Recommendation: Hold

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Multiples

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Multiples Table• Estimated g =

11.96%• Spread = 5.35%• Margin = 23.13%

Fox multiples consistently below industry averages Still indicative of a positive spread in the future

Weighted average industry EV/EBIT 10.6 vs Fox 9.47 Indicates that there is most likely positive spread– yet smaller than industry average

Industry PEG 1.37 vs Fox 1.06 Suggests that fox still efficiently investing funds and will be profitable in future

Both Fox’s P/B and long term growth EPS greater than industry average Stock selling at premium and forecasted to be profitable in long term

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Multiples Table

FOX vs CBS vs Time Warner Growth: CBS>FOX>Time Warner EV/EBIT: Time Warner>CBS>FOX  PEG: Time Warner>FOX>CBS Margin: Time Warner>FOX>CBS

• Implied multiples below range of Bloomberg multiples