This is from today's Barron's. Maybe this article will spur enough investment interest to get Comcast in the 40's. I did not know they owned a part of Jones Intercable. They own so much it is difficult, if not impossible, to arrive at an accurate valuation. And I disagree with her assessment that family control complicates matters. The family owns the voting shares but only a minority of the company. And in today's litigious environment they have to put fiduciary responsibility to the other shareholders first. When you think about it, owning the voting shares without owning a majority of the outstanding shares (which have equal ownership rights but less votes) probably means diddly.
<<Q: Any way you slice it, media and communications stocks are a lot more expensive today than they were six months ago. What, if anything, is still affordable in the sector?
A: It's not a question of affordability. It's a question of timing, and that's a very difficult game to play. I suggest targeting certain companies that you think will do especially well over time. In cable, let me throw out two names: Comcast and Jones Intercable. At around $40 a share, Comcast is trading near its 52-week high. But it's one of the best-managed companies in the business, and it's got excellent assets. In addition to cable distribution, the company owns almost 60% of QVC, the electronic retailer, as well as stakes in other cable-program suppliers, and controlling interests in two Philadelphia sports teams, the 76ers and the Flyers. There are two classes of stock; the K shares are more readily tradable. Even at current prices, Comcast is trading at a discount to recently completed private-market transactions. At the end of June, Paul Allen's Charter Communications bought Bresnan Communications, a closely held cable system operator in the Midwest, for the equivalent of $4,500 per subscriber. Comcast sells for only $3,200 per sub. Of course, buyers typically have to pay premiums, and Comcast is a family-controlled company that is not about to be sold.
Q: How fast is Comcast growing?
A: Total EBITDA [earnings before interest, taxes, depreciation and amortization] is growing at an annual rate of 12%-14%. And the stock is selling for roughly 14 times cash flow. Assuming the company's growth rate continues apace, there is the possibility of multiple expansion.
Q: What has been driving growth?
A: Comcast has enjoyed a combination of new-subscriber growth, higher cable rates and greater operating efficiencies in both its own and acquired operations. QVC also has been growing. In the future, the company will benefit from continued operating efficiencies as well as revenues and cash flows from new services. Comcast has been rolling out digital television, which has met with very good response. If the company can achieve 50% digital TV penetration among its eight million cable subscribers, at a monthly $10 per subscriber in incremental cash flow, we're talking maybe $400 million of incremental cash flow on a base of about $1.5 billion in core cable EBITDA. That's a significant increase. It won't happen tomorrow. This is a long-term scenario and the monthly contribution might be lower as distribution broadens. But digital TV probably will yield a quicker payback than some other new ventures.
Q: Such as?
A: Farther out, perhaps, telephony. The company signed a deal with AT&T when the pair divided the spoils of MediaOne, to be able to introduce telephony jointly in Comcast's markets.
Q: Doesn't Comcast control Jones Intercable?
A: In April Comcast acquired almost half the voting interest in Jones. It owns a 37% economic stake and a 47% voting stake. There are no assurances, but at some point it's likely to buy the rest of the company. Why have an extra public company out there? There were some complications about acquiring Jones all at once. So the buyout, assuming it's done, will occur in stages. Right now Jones sells for $49 a share, or roughly $3,100 per subscriber. If Comcast paid, say, $3,600 a sub, the shares would be trading at $60.
Q: Absent a sale, why own Jones?
A: The company is growing nicely, and with Comcast management on board, it's likely to report even better numbers. Like other cable operators, Jones has been introducing new services and adding subscribers. Cash flow grew 13% in the first quarter, on internal subscriber growth of 2.2%. Those are very strong numbers. With some cost savings, growth could accelerate.>>
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