NWS- Requires A Leap of Faith

NWS is cheap but it requires a leap of faith. Quite a big leap, in fact. You’re betting that Rupert Murdoch and the intelligent people he employs are right, and that the market is wrong.

News and Information Services (NIS) is suffering as advertising revenues shift away from old media. In the most recent quarter, advertising revenues declined 11%. Continuing weakness means we’re expecting divisional earnings before interest, tax, depreciation and amortisation (EBITDA) of around US$470m for 2016, down 50% since 2012. That’s certainly worse than expected, so it’s little wonder the stock has been weak.


But NIS’s management isn’t forsaking old media. Quite the contrary; it’s actually making acquisitions. NIS recently acquired APN News and Media’s regional newspaper business for US$27m, or just two times EBITDA. The recent US$290m takeover of UK radio group Wireless Group plc is harder to fathom on a seemingly pricey 19 times EBITDA, although earnings will grow as recently launched stations mature.

There’s clear value in this unusual conglomerate. Yes, there’s a risk if earnings continue to plummet. But that will likely force some type of corporate restructure. And yes, we’ve been harping on about News Corporation for a while. But at less than $16 this is a compelling opportunity.