+ Watch STRZA
on My Watchlist
Potential acquisition target
Wow, the fundamentals are boggling
Investment thesis for Starz (NASDQ: STRZA)Narrative Starz was spun off by Liberty Media on January 14, 2013, although technically Liberty Media was the spin-off despite the fact that it retained most of the company assets. This was a series of complicated gyrations which I believe was a result of the way Starz loans were structured. To initiate this complicated affair the Starz subsidiary drew down its line of credit and distributed $1.8 billion to its parent company Liberty media. The majority of the assets of Liberty Media including significant stakes in Sirius Xm, LiveNation, Barnes & Noble, the Atlanta Braves and TruePosition were then spun-off into a temporary holding company called Spinco. This left Liberty Media with only the Starz and Encore premium cable channels. The name of this slimmed down Liberty Media was changed to Starz. Following the Starz name change Spinco was renamed Liberty Media. The practical result of all this sleight of hand was the release of a highly leveraged Starz.Starz upside potential Why might Starz be a good investment candidate?1. Spin-offs historically outperform the market. This is a classic highly-leveraged spin-off.2. Jim Malone was the driver behind this spin-out, which explains part the complicated nature of the transaction. Jim Malone famously spun-out Liberty Media while CEO of TCI in 1991 (see page 115 of Joel Greenblatt’s “You can be a Stock Market Genius”.) Jim is very good at making money, especially for himself.3. Insiders retain control of both companies. Specifically, Jim Malone while holding only 1.9 million STRZA shares of the 120 million total outstanding shares for a 1.5% stake, but holds 9 million shares of class b shares (STRZB) which entitles him to 10 votes per share versus 1 vote per share of the class A stock. As a result he controls close to 80% of the voting share.4. Berkshire Hathaway owns 5.5 million shares5. Barron’s estimates the company is worth $3 billion (http://online.barrons.com/article/SB50001424052748703711604578143553125527238.html); twice its current enterprise value. So, a per share valuation somewhere between $22-$30.6. Starz subscriber base increased 9% to 20.8 million for the three quarters ending Sept. 30, while Encore increased its subscriber base 5% to 34.3 million. A total of 55.1 million subscribers compared to HBO’s 39.5 million and Showtime’s 21.3 million.7. Those increased subscriber numbers translated into a 7% increase in net income but only a 2.2% increase in revenue and free cash flow or $10.19/share.8. Let me repeat that: $10.19/sh FCF. Starz is a cash cow currently trading at 1.5 times FCF. Even a very conservative valuation of 5 times FCF puts the valuation at $50/share. So, the $1.1 billion in debt (at favorable terms) shouldn’t be a problem.9. Earnings are $1.69/sh through the first nine months. That works out to a 9.28 PE ratio with three months of earnings still to go.10. Starz tracking stock was trading between $46.04 and $81.36 in 2010 and 2011.11. Adding new, original content like ‘Sparticus’.Downside potential1. $1.1 billion in new debt. LIBOR rates could suddenly skyrocket - OK, may not. 2. Subscriber growth could slow. Even if it did it would still give one plenty of time to exit.3. Contract with Disney is expiring in 2015 and with Sony in 2016. So, content may suffer. 4. Adding new, original content which could be pricey to produce.SummaryMalone seems to have set this up as a take-over target. Names of potential buyers being floated are Disney, Sony, Comcast, Netflix and Univision. I’d expect to see a move to snap up Starz within the next year.
Starz is a Liberty Media spinoff and John Malone knows how to use tricks and trinkets to pump up share prices. There's a reason that he's made enough money to become the largest land owner in America.Artemis Capital via SumZero and CAPS' Megashort believe that Sratz is an attractive investment opportunity. I'm not buying it with real money, but I'm definitely following this spinoff in my CAPS special situation portfolio.Deej
At this point, STARZ just doesn't twinkle for me. The industry competition is getting frenzied and, at this point, their programming is uninspiring and duplicative. I don't see much impetus towards consolidation, either, so who would buy them up? Better buys are out there
John Malone is an aggressive player and is successful most of the time.
rising relative strength. accumulation.
Following the smart money.
Owns 50 percent stake in DirecTV. Trading at less than half of net asset value
New screen; from 3 stars three months ago, 4 stars two months ago, and five stars this month
BATS data provided in real-time. NYSE, NASDAQ and NYSEMKT data delayed 15 minutes.
Real-Time prices provided by BATS. Market data provided by Interactive Data.
Company fundamental data provided by Morningstar. Earnings Estimates, Analyst Ratings and Key Statistics provided by Zacks.
SEC Filings and Insider Transactions provided by Edgar Online.
Powered and implemented by Interactive Data Managed Solutions. Terms & Conditions