Another fairly quiet quarter is in the books at Liberty Media which controls tracking stocks in Formula One (FWONA/K) and Liberty Sirius (LSXMA/K). LSXM controls nearly 70% of SIRI and SIRI had already reported strong second quarter results so there was very little discussion on that front. FWON was the primary subject although there were many questions regarding recent takeover rumors about Charter Communications (CHTR) which is owned by a separate Liberty Media company in which Northlake clients are not presently invested. The CHTR takeover rumors do support our long-standing investment in Comcast (CMCSA) as they justify the good outlook for the cable industry even as cord cutting, cord shaving, and cord nevering has accelerated in 2017. Cable is well protected from disruption in its video business as the provider of the leading broadband internet network – you need great internet service to take advantage of internet-delivered over the top video.
Results at FWON were largely in line with estimates, showing very modest growth. Approximately 1/3rd of the Formula One (F1) racing season was completed as of 2Q17. While it is too soon for Liberty’s vision for enhancing F1 to be implemented, there are some positive signs with race sponsorship up modestly, TV ratings and attendance up vs. last season, and positive steps to reduce leverage and interest costs on the balance sheet. F1 has great potential as a global sports business that has been undernourished and undermanaged. We expect Liberty to boost the prospects of FWON over the next several years as it brings its expertise in media and sports media to company operations.
FWON shares are currently valued similarly to other trophy sports assets that trade publicly like the Atlanta Braves (via Liberty controlled BATRA/K), Manchester United (MANU), and the New York Knicks (via MSG). The next leg up in FWON shares may be a ways off as it will take Liberty time to make significant changes to the F1 racing competition and business. However, we think it is worth the wait even if at some point there is a little profit taking among less patient investors.
We still see modest upside in SIRI that will boost LSXMK but are closely watching the economy and auto sales that could trip up the growth story. LSXMK trades at more than a 15% discount to the value of the SIRI shares it owns, providing some support over the next six to twelve months.
FWONA, FWONK, LSXMA and LSXMK are widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg’s personal accounts. Steve is sole proprietor of Northlake, a registered investment advisor. Northlake’s regulatory filings can be found at www.sec.gov. FWONK is net long position in the Entermedia Funds. LSXMK is held as an arbitraged long position against a short in SIRI in the Entermedia Funds. Steve is portfolio manager and managing partner of Entermedia, long/short equity hedge funds focused on media, entertainment, leisure, communications, and related technologies.