Twenty-First Century Fox Inc
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Transcript of Twenty-First Century Fox Inc
Twenty-First Century Fox Inc ValuationBMGT443LOVEPREET A, BASMA H, ADAM P, JAKE L, KAYLA S, JODY M, CAROLINE D
The EIC Framework
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
Industry With the rise in
production budgets and television advertisements, the industry performance is expected to grow
Cumulative ROE sits at 24%. Highly Attractive
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
Company ROIC is 12.85%and WACC
is 7.5%. Positive spread
Maintain an ROE of 24%
High tide raises all ships
Historical Analysis
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
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)
Industry ROIC Tree
Industry ROIC Tree
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
Valuation
As-is Valuation
• Current Share Price: $26.66• Model Share Price: $26.40
• Predict that revenue growth will decline, based on historical figures and current events
• EBITDA and depreciation increase to fit 23.3% margin
Bull,Bear and Target Valuations
Bull Valuation –Model Share Price is$ 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
ROIC Chart
Recommendation: Hold
Multiples
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
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