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Fake News

3 February 2021 By Jeffrey Goldfarb

There’s a hole in the News Corp story. The company trades at a curiously deep discount to its collection of misfit parts. Despite justifiable investor concern about Chairman Rupert Murdoch, a second read is warranted.

Since the media mogul split his empire in June 2013, the $11.6 billion News Corp’s stock price has woefully underperformed the broader market, delivering an annualised total shareholder return of only about 4%. Recent steps taken by the company and deals struck by peers change some of the calculus, however.

Taking News Corp’s parts in turn, its 62% stake in Australian online property listings outfit REA alone is worth over $9 billion at the listed unit’s current stock price. Murdoch’s similar U.S. business Move, which owns Realtor.com, is also growing quickly. Rival Homesnap sold for 6 times revenue last year. Apply that multiple to the $528 million top line forecast for Move, according to Visible Alpha, and News Corp’s 80% stake is worth $2.5 billion.

A book publishing transaction should similarly boost News Corp’s HarperCollins. Bertelsmann is buying Simon & Schuster for what Bank of America analysts peg at about 10 times EBITDA, including estimated synergies. Assume 8 times for the $250 million of EBITDA that JPMorgan analysts expect for HarperCollins in 2022 and that’s another $2 billion.

Meanwhile at Wall Street Journal publisher Dow Jones, now reported as a separate unit, digital subscriptions and operating margins have been improving. The New York Times trades at nearly 26 times expected EBITDA. On a more conservative multiple of 20 times, Dow Jones would be worth nearly $6 billion on JPMorgan’s EBITDA estimate.

A 65% stake in Australian pay-TV business Foxtel generates chunky earnings, but may be a distraction considering the capital intensity and competitive threats. On Dish Network’s valuation, the holding would fetch just $1 billion. Figure the Australian and British newspapers are worth nothing and that the corporate costs, capitalised, chew up some $1.8 billion of value. Tot it all up, add back some $250 million of net cash and News Corp’s implied market value is about $19 billion, 65% higher than at present.

Murdoch’s self-interest is well-established, however. A dual-class share structure and a lead independent director who isn’t exactly independent are deterrents. Although the company scores well on climate matters, having newspapers that cast doubt on global warming doesn’t suit the era of environmental, social and governance consciousness either. The depth of the conglomerate markdown, however, is a headline worth noting.

 

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