AT&T’s $85.4bn offer for Time Warner (TWX) boosted the media company stock price above 35% YTD. I started a long position late in 2015 on the back of cheap valuation levels on an absolute and relative basis, improving fundamentals, shareholder-friendly management, unexploited hidden assets (e.g. DC Comics brand value), fear-driven sell-off in media stocks and event driven possibilities. The last of those points was important and related to a excessively low implied valuation of TWX's HBO business: Firstly, when appraising TWX valuation in late Nov 2015 without accounting for HBO’s cash flow. Around one third of TWX EBITDA was generated by HBO, subtracting this contribution from TWX’s FCF was helpful to work out a TWX ex-HBO valuation estimate. Our baseline scenario for HBO implied valuation was around 18bn USD or 28% of TWX market cap, which compared favorably against other HBO peers (see Netflix comp chart below). AT&T just crunched the same or similar numbers and launched its offer last week. There's a good spread between AT&T bid price and current TWX, yet this deal is going to cause a lot of political controversy with regulatory scrutiny pressures inevitably causing volatility to increase and US elections adding further uncertainty. Therefore, the best way of action lock up profits as soon as possible and enter again once elections are over and visibility increases. This will determine whether it's worth to play a market-neutral spread or bet for a deal break-up using optionality. Disclaimer: the blog is intended to convey investment ideas and, market views , yet they are not a solicitation or recommendation to buy/sell/hold securities but merely investment ideas that should NEVER serve as the basis of the reader trading decisions. This website and its reports are for general information purposes and any investment decision should be discussed with a financial adviser before taking place. The investment ideas displayed here could have been implemented at an earlier date than the one stated at the blog's post date; for which reason the latter dates do not represent accurate and timely entry/exit points in order to protect those investors with whom the blog author has a fiduciary agreement.
0 Comments
Leave a Reply. |
Carlos Salas
LINKS Data Science & ML NYC Data Science Blog Data Science Central Towards Data Science Kaggle Blog Analytics Vidhya Quant Finance Quantocracy MoneyScience QuantStrat Trade R Investments Market Screner Macro Calendar Corporate Calendar Advisor Perspectives Trading Economics Portfolio Visualizer Datasets Opendata Data.Gov World Bank Quandl |