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News Corp’s long anticipated exit from Foxtel will give the media group space to further pitch to the market what it sees as undervalued businesses.
And a better earnings profile. Without Foxtel on its books, News would have had an annual growth rate of 9% compared to 5%, according to market analysts.
News and Telstra sold to global sports streaming platform DAZN Group, giving Foxtel an enterprise value of $3.4 billion.
Under the terms of the agreement, shareholder loans of $578 million owing to News Corp will be repaid in full in cash.
News CEO Robert Thomson, a former editor in chief of the Wall Street Journal, believes the media group is largely undervalued by the market.
Thomson has long been keen on Dow Jones and its professional information services. Another key asset is News’ online real estate classifieds, now growing in the US, as well as the REA investment in Australia.
Lachlan Murdoch, the current chair of News Corp, made an early investment of less than $US2 million in REA, a strategic stake that has become a 61% share in a company worth $AUD31 billion based on recent trading.
News’ stake, at that valuation, would then be worth about $US12.5 billion.
“Given that our market cap is roughly $US17 billion, that means that Dow Jones, including the Wall Street Journal and the lucrative B to B businesses, plus Harper Collins, plus Realtor, plus the Times of London and the Sun, plus our UK Radio Network, plus our Australian papers, plus Foxtel and a few other companies, are apparently perceived to be worth less than $5 billion which we believe simply defies investing or mathematical logic," Thomson said.
Thomson, when announcing the Foxtel deal with DAZN, said the transaction allows News Corp to focus on growth pillars of Dow Jones, Digital Real Estate and Book Publishing.
Goldman Sachs analysts said the agreement follows a strategic and financial review of Foxtel as part of News Corp’s ongoing efforts to optimise its portfolio and simplify the structure of the company.
At Jarden, analysts say the removal of Foxtel numbers is likely to create some noise in News Corp's results.
Foxtel’s recent contributions to News have suffered from a strong US dollar. Dollars earned in Australia haven’t been translating when sent to New York.
Jarden forecasts December quarter group revenue of US$2.197 billion, up 4%, without including subscription video services.
Goldman Sachs has News Corp as a buy and Jarden has an overweight rating.
News is due this month to announce its latest quarterly earnings.
The company in November reported record quarterly revenue, up 3% to $US2.58 billion for the three months to September.
Net income was up 148% to $144 million. Total segment EBITDA (earnings before interest, taxes, depreciation, and amortisation) surged 14% to $415 million.
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