In this final part of the series, we’ll look at some key metrics investors can use to compare values of media companies. We’ll specifically look at media valuation multiples, which may be used to value conglomerates.
Some of the usual valuation multiples for companies are PE (price-to-earnings), EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization), PCF (price-to-cash flows), and PFCF (price-to-free cash flows).
The price-based multiples take into account value from a shareholder’s perspective. The EV-based multiples help investors understand the value of the company from the point of view of a company’s holders of sources of capital. These are forward multiples based on expected values of the denominator after a year.
Viacom is undervalued
As the graph above indicates, Viacom (VIAB) has a forward EV-to-EBITDA multiple of 7.4x and a price-cash-flow multiple of 7.7x. In contrast, The Walt Disney Company (DIS) has a high forward EV-to-EBITDA multiple of 10.3x. Peers 21st Century Fox (FOXA), Time Warner (TWX), and CBS (CBS) have forward EV-to-EBITDA ratios of 10.7x, 9.5x, and 9.7x, respectively. This indicates that Viacom is undervalued among its peers.
Viacom’s value proposition
Viacom stated at a Deutsche (DB) Bank investor conference earlier this month that it believes its EPIX asset has been underappreciated by Viacom investors. EPIX, launched in 2009, is jointly owned by Viacom, Lions Gate Entertainment (LGF), and MGM (Metro-Goldwyn-Mayer).
The company plans to launch two original series on EPIX this year. Viacom further stated at the investor conference, “So we’re going to grab market share in that market. It’s multiplatform and it’s been profitable pretty much from – the first year was a start-up phase. Since the first year, it’s been profitable. And we’ll – we certainly would be interested in consolidating that in the future and this is an area of expertise for us and we’re going to have increasing distribution opportunities for EPIX.”
Viacom accounts for 0.08% of the SPDR S&P 500 ETF (SPY). If you’re interested in exposure to the computers sector, note that SPY has 3.9% exposure to that sector.