Friday, 6 November 2015

Disney - content is still king.

Disney numbers after the close yesterday (Thursday) were interesting at a number of levels.  The headline numbers on both a quarter-and-quarter and year-on-year basis both showed progress (‘fifth consecutive year of record results’)...

...and perhaps even more interestingly were some of the divisional splits, especially the 'Media Networks' business given the controversies noted last quarter as I wrote up here especially with regard to ESPN.

The tone in yesterday's presentation was somewhat different however with comments such as:

‘ESPN: the brand is stronger than ever…last year seen the three biggest 
viewer numbers in cable history’

‘ESPN…very strong advertising market for sport’

Other comments of note included a general observation that ‘the demand for content is greater than ever’…but distribution matters more and more which clearly augers strategically positively for the group.  And then for selected divisions: 

Parks and Resorts:
Excited re launch of Shanghai Disney in Spring next year

"Guest spending growth was primarily due to higher average hotel room rates and ticket prices for sailings at Disney Cruise Line"

Capex US$800m higher in fiscal ’16 due to launch of Shanghai Disney

Studio Entertainment:
Star Wars – ‘already see the impact’ despite new film still 6 weeks away!

I also noted that the company described their share buyback undertaken below US$110/share as being at‘very attractive levels’. The company anticipates buying US$6-8 billion back in stock over the next year equivalent to about 3.5% of the market cap (and in addition to the current 1.3% yield). 

Such distribution is a little ahead of the underlying free cash flow generation but with net debt below x1 ebitda there is plenty of room to move:  

So thoughts on valuation.  I noted at the link above that below US$105 (as occurred in late August and late September) equated to value (< x12 prospective EV/ebit) and the progress noted above mechanistically pushes this level to US$107.  So a 'buy' below this level...and I think reasonable now to conclude a hold until at least US$120 and possibly beyond.  So at US$113 currently a hold...but impressive progress from Disney.  On a relatively bad day as noted above I could see myself buying this stock again given the notes and observations above.  Content is still king of course. 

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