Market analysts are upbeat about News Corp’s latest results and the prospects of a sale for the media group’s holding in Foxtel.
The news of “third party” interest in the television cable and streaming business sent shares in News Corp jumping.
The key unanswered question: who wants to buy Foxtel and for how much would it take for the business to change hands.
One report has private equity in the frame, including a possible bid by the US-based Platinum Equity.
Nine reportedly had talks with News about Foxtel but that didn’t go anywhere. News also toyed a couple of years ago with floating Foxtel on the ASX, a way to break out value.
News, under current CEO Robert Thomson, has been at pains to educate the market on the underlying value of its divisions, including Foxtel and financial news and information service Dow Jones.
And no doubt the interest in Foxtel was well received at News Corp headquarters.
Thomson, being questioned by market analysts on June quarter results, described the interest as a “significant overture” which was being assessed.
“But let me make absolutely clear that we have full faith in the potential of Foxtel and our talented team at Foxtel, who've fashioned a world class viewing experience and created ko which really is the best sports streaming platform globally,” he said.
“Hence the interest in emulating its success in the US, but on behalf of shareholders, we obviously have to evaluate any interest knowing that we are ourselves fervent Foxtel fans.
“The streaming business is surging, and broadcast ARPU (average revenue per user) in the most recent quarter was 6% higher than a year earlier.
“Strategically, we have been undertaking a broad review of our portfolio and its potential in the quest to increase shareholder value. On that particular matter, you'll have to stay tuned, but not indefinitely, not perpetually, not ad infinitum.”
Market analysts generally like the June quarter results and the interest in Foxtel.
Goldman Sachs described the result as another strong quarter and investment bank UBS described the outlook as solid.
Macquarie analysts maintained their outperform rating on News. “News Corp offers exposure to the media sector with a structurally growing earnings base thanks to its digital businesses,” said the analysts.
They see the Foxtel sale as a positive.
The value of Foxtel could be somewhere near $2 billion, depending on the interests of the buyer and whether or not synergies are available.
And many analysts, tired of waiting for the results of a long running review of News’ business, see the Foxtel interest as a possible accelerant for change.
“The emergence of outside interest in acquiring Foxtel has the potential to expedite News Corp's corporate structure review, a protracted process to date that is making some analysts and investors anxious,” said Brian Han, director at Morningstar.
“Management is at pains to trumpet Foxtel's progress in becoming a more streaming-centric platform, and its faith in the business' long-term future.
“However, we suspect very few investors would shed a tear if Foxtel was sold. It is a business where EBITDA has fallen 4% a year on average over the past five years.
“It is hampered by cord cutting, burdened with expensive sports rights, and increasingly playing in the ever competitive streaming space against the global digital behemoths.”
Foxtel revenue grew 1% to $US506 million in the June quarter, driven by Kayo and BINGE with increases in both volume and pricing.
This was offset by the impact from fewer residential broadcast subscribers and a $7 million, or 1%, negative impact from foreign currency fluctuations.
Foxtel Group streaming subscription revenue represented 32% of total circulation and subscription revenues, compared to 29% in the same quarter last year.
As of June 30, Foxtel’s total paid subscribers hit nearly 4.7 million, a 1% increase, driven by growth in Kayo and BINGE subscribers, partly offset by fewer residential broadcast subscribers.
Broadcast subscriber churn in the quarter was 11.7% compared to 11.1% in the prior year. Broadcast ARPU for the quarter increased 6% to A$90.
News Corp holds 65% of Foxtel and telco Telstra 35%.
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