News Company Stocks: Attractive Upside Still Exists (NASDAQ:NWS)

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A significant and interesting multimedia company that investors should be advised to take a close look at is press company (NASDAQ: NWS) (NASDAQ: NWSA). The company’s recent performance, while not all strong, has been overall positive. Management continues to create value for its investors and the company’s share price rewards those same investors. In the long term, it is impossible to know what the future holds. But given the low stock price today, investors should view the company as a favorable prospect going forward.

An update on News Corporation

In November 2021, I wrote an article for News Corporation in which I described the company’s bumpy operating history. Although financial performance in previous years had been somewhat volatile, I also pointed out that the company’s shares were trading at fairly cheap levels on an absolute basis. In the end, I rated the company as a buy prospect, telling my readers that I believe buying investors could see a nice upside in the years to come. Although a short time has passed, things have started well. Even though the S&P 500 generated a loss of 1.8%, buying News Corporation would have generated a profit of 2.3% over the same time window.

This disparity in returns, while not necessarily significant, has been supported by the company’s continued strong performance. At the time of my last company post, data only existed for the company’s first quarter of fiscal 2022 and before. Since then, we’ve seen another quarter of data come out. And the results are promising. Revenue during this period totaled $2.72 billion. That’s a 12.6% year-over-year increase from the company’s reported $2.41 billion run for the second quarter of fiscal 2021. Even though revenue growth has been significantly positive over this period, pushing total revenue from $4.53 billion in the first six months of 2021 to $5.22 billion in the same period this year, not all parts of the business performed well.

For example, revenue associated with the subscription video services portion of the business declined from $511 million to $498 million in the most recent quarter. But beyond that, most other parts of the business have done pretty well. The biggest growth, unsurprisingly, came from the Digital Real Estate Services unit, which consists of the company’s 61.4% stake in REA Group (OTCPK:RPGRF) (OTC:RPGRY) and its 80% stake in Move (the remaining 20% ​​being held by REA). Sales there reached $456 million for the quarter, representing a 34.5% year-over-year increase. Thanks to this, the company’s first six months of fiscal 2022 revenue increased by 40.2% compared to the same period last year. It should also be noted that some legacy parts of the business have performed exceptionally well this year. Book publishing revenues are up 16.1% and news media revenues are up 14.5%. Meanwhile, the company’s Dow Jones segment also saw attractive growth, with revenue up 14.4% year-over-year.

With rising revenues, profits have also steadily increased. For the company’s first six months of fiscal 2022, net income totaled $431 million. That compares to the $265 million reported a year earlier. Operating cash flow decreased from $483 million to $430 million. But if we adjust for changes in working capital, it would actually have gone from $664 million to $888 million. Meanwhile, the company’s EBITDA rose from $765 million to $996 million. On top of all this, the company also continues to focus on other ways to grow. In December last year, for example, management announced the acquisition of Base Chemicals, a provider of chemical market data and analytics. It cost the company $295 million and follows its announced purchase in July of the same year of the oil price information service for an even larger $1.15 billion.

News Corp Stock Trading Multiples

Author – SEC EDGAR Data

When it comes to valuing the business, the process is quite simple. Using the company’s 2021 results, I calculated that the company is trading at a price to adjusted operating cash flow multiple of 11.4. However, if we annualize the experience of the results for fiscal year 2022, this number would drop further to 8.5. When I last wrote about the company, using estimates for 2021, I calculated a price-adjusted operating cash flow multiple 2 for the company of 9.4. Another way to view the business is through the lens of the EV/EBITDA multiple. For 2021, that number has also increased to 11.4. This drops to 8.7 based on 2022 estimates and it was 11.7 in my last article.

To put the price of the company into perspective, I decided to compare it to five similar companies. Unfortunately, only four of them had positive results. On a price/operating cash flow basis, these four companies ranged from a low of 6.7 to a high of 28.8. In this case, using our 2021 numbers, two of the five companies were cheaper than News Corporation. On an EV/EBITDA basis, the range was 6.9 to 19.6. Again, three of the four companies were less expensive than our target.

Company Price / Operating Cash EV / EBITDA
press company 11.4 11.4
John Wiley & Sons (JW.A) (JW.B) 8.3 8.5
Gannett Co. (GCI) 6.7 6.9
The New York Times (NYT) 28.8 19.6
Pearson (PSO) 17.3 8.5

As other Seeking Alpha authors rightly point out, there are different ways to evaluate the business. One is to look at the business from the perspective of its individual components. Perhaps the easiest asset to use to illustrate this exercise is the aforementioned corporate ownership of REA Group. The reason why is simple is that REA Group is also a listed company. At present, the company has a market capitalization of $13.40 billion. Given News Corporation’s 61.4% stake in the entity, this implies a net worth for the company of $8.23 billion. Removing that from News Corporation alone would leave only $5.20 billion out of News Corporation’s $13.43 billion market capitalization. In short, this asset alone accounts for 61.3% of the company’s overall equity value, despite only accounting for 32.9% of its earnings (also including ownership of Move). This does not mean, of course, that the other assets are worth as much pro rata.

Company financial data

press company

Revenues associated with digital real estate services, the segment in which REA Group and Move are included, grew at a faster rate than the rest of the business. Among the company’s growth segments, excluding this unit, revenue growth from 2020 to 2021, for example, reached 12%, while profit growth was 28.6%. But for digital real estate services, those numbers were 30.8% and 49%, respectively. What this means, however, is that my valuation of the company indicates stocks that, while perhaps quite valued relative to similar companies, are undervalued, but perhaps not as undervalued as which might be the case. The value of the company’s other assets could very well be worth much more than what the company is trading today. Take, for example, the Dow Jones segment of society. Assigning it a proportional share of the costs of the business, we end up with an EBITDA in 2021 of $270.9 million. This unit, I would say, is comparable to the New York Times. Currently, The New York Times is trading at an EV/EBITDA multiple of 18.4. Using this same multiple would imply a total value for Dow Jones of $4.98 billion. That, combined with the ownership of REA Group, already brings us to $13.21 billion, which is remarkably close to both News Corporation’s market capitalization and enterprise value.

Carry

Based on the data provided, it seems to me that News Corporation continues to perform well for investors. In the long term, the company could very well create a lot of value for these shareholders. My own analysis is a more conservative approach to looking at the business. And it shows that stocks probably have some edge, even if they may be reasonably priced compared to similar companies. Once you start talking about a sum of coin analysis, however, it becomes clear how cheap the business actually is. Even so, I would prefer to err on the side of caution. Either way, I can understand why investors would be attracted to this company.

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