Lead Portfolio Manager Matt Moran of River Road Asset Management sees many reasons to include Twenty-First Century Fox Inc (FOX) in his portfolio. Moran says the company has the highest return on invested capital among all the studios, and is inexpensive for such a high-quality business.
“You’ve got probably the world’s best collection of cable assets. They have the largest group of regional sports networks. If you think about the DVR world that we live in, the one form of content that is immune to DVRs is sports because people tend to watch sports live, and that’s very attractive to advertisers,” Moran said. “They also have a broadcast segment with retransmission agreements that will grow over time.”
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Moran also says that while many media stocks have gotten cheap due to weak advertising, Fox is only 20% exposed. Additionally, Moran says Fox is inexpensive relative to the quality of the company.
“Rising affiliate fees with cable companies are going to grow EBITDA at a midteens rate over the next couple of years. What are investors paying for that? They are paying around nine times EV to EBITDA. Other media companies have historically traded for 12 times. Transactions get done in the midteens range. So we think that’s too cheap for such a high-quality business. Their balance sheet is fantastic, and they have just raised the dividend 50%,” Moran said.
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