« NTL and Telewest Finally Announce Merger | Main | Extra, Extra: Newspaper Stocks Face Long-Term Challenges »
October 11, 2005
M&A Might Drive Interest in Media Stocks
Monday's close on the S&P 500 was the lowest since May 18th. That is not what I wanted to talk about today but I was a little surprised as I scanned back that I had to go back almost five months to find the last lower close. Ouch. Bye-bye to all those summer gains.
I received a note from Aryeh Bourkoff, the excellent cable analyst at UBS, yesterday which noted Belgium's largest cable company, Telenet, completed an IPO. While the pricing was at the low end of the range, the multiple was a healthy at 10 times 2006 estimated EBITDA. This marks the second deal in European cable since I posted last week about European media M&A. Late last week, bankrupt German cable company PrimaCom sold its Dutch cable business to Warburg Pincus for over 10 times projected 2006 EBITDA. Previously, I noted that Liberty Global (LBTYA) paid over 10 times EBITDA for leading Swiss cable outfit Cablecom. And of course, the long awaited NTL-Telewest merger was announced on October 3rd. While UK cable trades at just 6 times EBITDA and the NTL deal was greeted with a shrug by investors, a deal is a deal....
....Last week on Street Insight, I noted that along with activity in broadcast TV assets, the European cable deals were supporting valuation for European media assets such as Central European Media Enterprises (CETV). I am beginning to wonder though if Comcast might catch a bid off all this M&A activity. The company should report seasonally strong 3Q05 earnings shortly and the rollout of VOIP ought to provide excitement for a good 4Q as well.
This summer I recommended Comcast which worked its way about 10% higher before giving back all the gains over the past month. Comcast trades at less than 8 times 2006 EBITDA, and while somewhat growth challenged relative to less mature European cable, it seems to me like the discount has grown too large. If I am right that the Street will like Comcast's 3Q05 numbers and 4Q05 guidance then now might be a good time to step up to Comcast shares again.
I am looking for a media name or two to replace SBS Broadcasting (SBTV) in my portfolios. The SBTV buyout should close by the end of OCtober. I am not in a big rush as I remain worried about the very short-term in the market but all this deal activity in Europe gives me hope that Comcast and some other media stocks could catch a bid before year end. Besides Comcast, I have my eye on LBTYA and its former parent Liberty Media (L). L is trading at the low end of its multiyear trading range, at a level form which it has often bounced. I also continue to like TWX where I think upcoming earnings news, particularly the advertising numbers at AOL, could provide catalyst. The bottom line is media stocks perform best when there is M&A activity. So far the activity is abroad, but in a shrinking world full of global private equity firms flush with cash and borrowing power, it seems like some U.S. assets with near-term catalyst are worth another look.
Posted by Steve Birenberg at October 11, 2005 07:34 AM
