Fox Model Revised After Closure Of BSkyB Deal

+61.08%
Upside
27.00
Market
43.49
Trefis
FOX: Fox Corp logo
FOX
Fox Corp

21st Century Fox (NASDAQ:FOX) has sold its pay-TV business in Italy and Germany to British Sky Broadcasting Group (BSkyB) for $8.6 billion cash and BSkyB’s 21% stake in the National Geographic Channel. [1] Sky Deutschland and Sky Italia were part of 21st Century Fox’s DBS segment. DBS had been a low margin business for the company. The segment’s revenues had grown at an average annual rate of less than 2% up to 2012. In 2013, Sky Deutschland was consolidated and this led to over 50% jump in segment revenues. If we look at EBITDA margins, they have declined from 19% in 2008 to an estimated 9% in 2013. Moreover, the business involves high capital expenditures. More than 50% of the company’s capital expenditures were associated with its DBS business in the past four years. Given these factors, it was a smart move for Fox to exit the DBS business. However, this deal could help BSkyB negotiate better pricing with the content owners and give the company a potential subscriber base of 97 million in Europe. BSkyB said it expects £200 million of annual cost savings by the end of the second financial year after the transaction is closed.

BSkyB is now the largest pay-TV operator in Europe with more than 20 million subscribers in the U.K., Ireland, Italy, Germany and Austria. Fox participated in the BSkyB’s equity offering and purchased $900 million worth of additional shares to retain its 39% stake in the pay-TV operator. With closure of all the transactions, Fox’s cash balance is up by $7.2 billion. We have adjusted the revenues for the first three quarters of 2014 to $4.58 billion and have forecast zero income from this business in the coming years. We will be completely removing this segment from our model after the company files the 10-k for fiscal 2015 with details of balance sheet items and the cash flows.

We estimate revenues of about $31.4 billion for 21st Century Fox in 2014, with EPS of $1.54, which is in line with the market consensus of $1.45-$1.64, compiled by Thomson Reuters. We currently have a $39 price estimate for 21st Century Fox, which is about 15% ahead of the current market price.

Relevant Articles
  1. Fox Stock Rallied 6% Last Week – What Should You Know?
  2. Fox Beats Q4 Estimates On The Back Of Gains In Cable Networks, Studio Performance
  3. U.S. Department of Justice Approves Disney-Fox Deal
  4. What Would A Potential Comcast-Fox Combination Look Like?
  5. How Much Could Comcast Benefit From Acquiring Fox’s Studio Business? 
  6. Why We Revised Our Price Estimate For Fox To $43

Understand How a Company’s Products Impact its Stock Price at Trefis

View Interactive Institutional Research (Powered by Trefis):

Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap
More Trefis Research

Notes:
  1. BSkyB Completes £7bn German And Italian Deal, Sky News, Nov 13, 2014 []