Ann: Half Yearly Report and Accounts, page-15

@MarsC

Thank you for sharing this thoughtful analysis. Very thorough and an interesting lens on valuation etc.With regards to management not having skin in the game - that has been something that has bothered me too. After the HY results presentation I contacted Martin and Blair. One of the topics I raised was that I much prefer management to "eat their own cooking". At the record low SP, my expectation is that senior execs and Board Members should be buying up large when they are out of the restricted zone. It would be a huge vote of confidence and strong signal to the market if they parted with meaningful amounts of their own money to buy into the business.
Blair has assured me that they do want to 'pile in' when they can, but part of the difficulty they have is that there is so much going on right now it is challenging to get windows where they can buy shares. I take him at his word - clearly a lot has been going on, and no doubt very important deals are being worked on as we speak which will have a tremendous impact on the value of the business (positive or negative!).

As for using EV as a valuation tool. In general, I think EV is a good lens to apply as a sense check when using other methods to ascribe value.I think it only really gives a sensible value though when market cap is representative of intrisic value. If you believe in efficient market hypothesis, they you would say that the current intrinsic value of Sky TV must be NZD$278M (because Mr Market says so!), and therefore an EV of approx is $490M is totally legit.Unfortunartely, in cases like Sky where (in my view) efficient market theory goes out the window...an unrealistically low EV is generated because the quoted value of the stock is out of whack.
The reverse would be true too by the way if market value is insanely high. Companies like NETFLIX, for example, which have high quoted value and insane debt levels have increbibly high EV which no rational buyer would pay to aquire the whole business.

To keep things super simple from a conceptual perspective, let's just say that Owner Earnings settled at $60M in the next year or two. And let's say that a rational buywer would be prepared to pay 10 times Owner Earnings. In that case the market cap = $600M and EV = approx $800M ($1.83/share).

It is exactly the same business, all that has changed is the market sentiment...yet the ascribed value for the company as a going concern is vastly different.Which is why I have tended to stick to valuation ranges based on likely earning profiles (as well as reverse scenarios to get an idea of how bad things would have to get before I would likely lose money at the current market valuation).