As a former media analyst for Michael Price before he sold out to Franklin, I understand full why Michael was buying the Comcast: the break-up value of the assets is approximately 2x the current market price of $17.50 or so. Comcast is essentially three companies: Cellular, Cable Distribution, Cable Programming. The Cellular division (despite the onset of serious competition from Sprint PCS and others) continues to grow cash flow at 20% and its subscriber bases equally impressively. The Cable Programming unit is principally QVC, the shopping shopping network, which has grown cash flow at about a 15% rate the last five years and is 40% owned by TCI. It is also aggressively expanding in Europe in England and Germany where start-up costs might reduce cash flow growth. Based on recently filed proxies and reports by management, I would estimate there is a 50% chance that management will spin-off either or both of these divisions to shareholders in the next year which could lead to a major upward revaluation of the stock as these assets are stand alone companies.
Obviously, the largest part of Comcast is the cable disttribution division which has over 3.5 million subsricbers and some very strong clusters (as opposed to TCI which has a rural and low growth subscriber base) Even despite DBS (which is going to slow down dramatically this year), Cable is growing operating OCF at 10% and despite heavy cap ex over the next few years, should be free cash flow positive by 1999. Including other non-operating balance sheets assets like $700 million of Teleport stock, Comcast, despite going from $15 to about $17.50 now is trading at less than 6.3x 1997E cash flow. This stock, like the rest of cable, was one of the worst performers of 1996 and will undergo a dramatic revaluation this year. Hope this is helpful and write again with any other questions - I know the Company very well and have met with Brian Roberts several times. |
