chart for those interested, page-2

re: chart + good fundamental analysis could be a downward trend. But don't forget the support line at around $20
I bought in there and made some money last time. Could do it again.
NWS was popular here. Murdock was always was and is a shining example of Aussie capitalism and we embraced him.
The Yanks may not be so keen to embrace an Aussie as we do our own.
Might treat him as an upstart like they did Multiplex and John Roberts. But it will only be a matter of time....
Check out this great analysis by Huntley
He has a buy under $23
NWS has been re-incorporated in the US, with one Australian CHESS Depositary Interest (CDI) equal to one US share. Shares are divided into Class A non-voting (NWSLV) and Class B voting (NWS). NWS is a globally integrated and diversified media company. Creation of in-depth regional and national content is distributed through different media channels. The core operational EBIT is derived from Film 27%, Television 24%, Cable Programming 18%, Magazines 8%, Newspapers 19% and Book Publishing 4%. Consistent cash flow derived from these divisions is redirected to growing global satellite subscriber numbers and internet exposure. This stock suits an investor looking for exposure to global economic growth and growth in the home entertainment market.


At the FY05 profit review our recommendation was a buy. The share price has since been floundering downwards in a whip saw action. In a process of clarification we decided to review the valuation of NWS, investigate how the US competitors are performing and look at a break up valuation. The exercise leads us to maintain a buy recommendation.


Over the last year NWS has endured a transfer of domicile to the US, leading to the gradual down weighting from Australian indices to the US S&P500. This process was completed on September 19 with local institutional selling adding downward pressure to NWS and upward pressure to other stocks as fund managers reallocate capital across the ASX Board.




A review of substantial shareholders indicates that 65% of the stock is tied up with long term holders, with the Murdoch's (through Cruden Investments) owning 28.5%, Liberty Media (Malone) blocked at 18% and Fidelity and Citicorp between them owning a further 18%. NWS itself has instigated a US$3bn buy back of shares of both NWS and NWSLV. A glut of stock owned by Australian institutions can take time to clear if NWS is not readily embraced by US investors. This means more sellers than buyers and short term price weakness.


The table provides a comparable valuation matrix of listed US competitors. Competitors hold different assets and march to very different strategic drums so the value of this information is limited.


Market Cap
P/E
PEG
EV/EBITDA

Time Warner
$84.40
20.4
2.08
9.7

Viacom Inc
$52.90
16.7
1.46
10.5

News Corp
$50.10
16.0
1.12
10.9

Walt Disney
$46.70
15.6
1.25
9.2




Source: Yahoo.com and AspectHuntley


The data shows that NWS has the lowest PEG ratio. This indicates that earnings growth dilutes the future P/E multiple, meaning it's the cheapest growth investment in the pack. NWS has the highest EBITDA multiple. This is explained by the contraction in short term cash flow as a result of high capital expense to roll out new set top boxes and build customer loyalty through trialling by new subscribers.


NWS has a number of listed assets that can be valued while core internal assets are valued using an EBIT multiple.



Sum of the Parts


Listed ($m)
Shares
Price
Loc Val
US Val

British Sky

Broadcasting (GBP)
686
5.56
3,814
6,762

DIRECTV Group
470
14.85
6,985
6,985

Gemstar -TV Guide
175
2.96
518
518

NDS Group
42
36.82
1,546
1,546

PHOENIX TV (HK)
1,854
1.15
2,132
275

Sky Network

Television (NZD)
170
5.95
1,011
690


Unlisted ($m)
FY06F EBIT
Multiple
Loc Val x Share
US Val

Sky Brazil (49.7%) (BRL)
66
14
459
204

Innova (30.0%)
120
14
504
504

FOXTEL (25.0%) (AUD)
35
14
123
92


Internal

Operations ($m)
FY06F EBIT

Filmed Entertainment
1,126
12

13,514

Television
899
12
10,792

Cable Network

Programming
587
14
8,219

Direct Broadcast

Satellite Television
173
14
2,429

Magazines and Inserts
317
12
3,806

Newspapers
939
10
9,391

Book Publishing
125
10

1,252

Total
66,980

Net debt
6,490

Enterprise Value
60,490


Average weighted shares
3,221


US value per share
18.78

AUD exchange rate
0.75

AUD value per share
25.04




A higher multiple is awarded to an asset that offers growing EBIT while more mature assets delivering consistent cash flows derive a lower EBIT multiple.


Our discounted cash flow (DCF) valuation is calculated using the following variables and comes to a value of $26.72 (exchange rate of 75 US cents).



DCF Assumptions


Discount Rate
11%

Avg growth in next 4yrs
15%

Growth 5 -10yrs
13%

Growth to perpetuity
4%




Assuming that NWS continues to build up its pay TV subscriber base and derive further revenue synergies from piping NWS content through set top boxes then the stock looks undervalued. The overhang of Australian stock could see a period of short term price weakness but over time we believe that the true fundamentals of the business should emerge and the market will efficiently price the value of the assets. The stock is volatile but long term investors looking for exposure to the global media industry should follow John Malone's lead and acquire a globally diversified premium media company with top rated content.


We are confident that Murdoch's strategic clarity will ensure that he is the best market operator to tackle the evolving media industry through the acquisition of key internet sites. Local content is king and Murdoch has the assets that are difficult to replicate. NWS is now adding different mediums that include cable, satellite and the internet to leverage content by adding more eyeballs. NWS represents a long term buy, but be wary of volatile short term price weakness, of little consequence as long as our longer term view is correct.