VIACOM INC VIAB
November 27, 2019 - 9:57pm EST by
venetian
2019 2020
Price: 24.13 EPS 0 0
Shares Out. (in M): 404 P/E 0 0
Market Cap (in $M): 9,749 P/FCF 0 0
Net Debt (in $M): 7,978 EBIT 0 0
TEV ($): 17,727 TEV/EBIT 0 0

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Description

Viacom (VIAB) or CBS Corp (CBS) appear as an appealing opportunity in advance of their planned merger that is expected to close on Dec 4th

 

In this writing I will focus on the valuation and return profile for this investment. For a more detailed strategic overview of CBS business and its potential combination with VIAB, please see the excellent Rasputin998 idea posted on Aug 2018. 

 

Rasputin writing clearly articulates how investor fears about cord cutting and TV advertising decline are overstated for a global media company like ViacomCBS.

 

Consumers are still eager for quality content and willing to pay for it. While the platforms through which this content is consumed will progressively shift from cable TV to DTC, the opportunity for premium content producers to monetize their efforts should not decline.

 

ViacomCBS should have a strong competitive position in this changing industry landscape, with significant scale and capabilities that should enable it to compete with main players Netflix, Disney, Comcast / NBC and Discovery an continue to create significant owners earnings going forward.

 

Pro Forma Strategic Position

 

 

·     Largest share of US TV audience with 22%

·     Premium content production at scale with over $13bn spent over last 12 months

·     Growing DTC strategy with Showtime, CBS All Access and Pluto TV

·     Global Production and Distribution platform, including Paramount one of the 5 Global Film Studios

·     Estimated $500mm of run-rate cost synergies

 

Pro-Forma Financials

 

Base Case 

 

Assumes consensus Op Earnings growth for VIAB (+0.3%) and CBS (2.8%), flat D&A, flat Capex, $750mm annual dividend, remaining FCF to repay debt, 8x EV/EBITDA exit multiple.

 

 

Q3 2019 TTM

2020

2021

VIAB OP Earnings

2462

2469

2477

D&A

215

215

215

VIAB EBITDA

2677

2684

2692

       

CBS OP Earnings

2522

2593

2665

D&A

213

213

213

CBS EBITDA

2735

2806

2878

       

Synergies

500

500

500

Pro-Forma EBITDA

5912

5990

6070

       

VIAB Interest Expense

489

   

CBS Int Expense

412

 

 

Pro-forma Int Expense

901

901

748

       

Normalized Taxes

1054

1072

1126

Capex

354

354

354

Owners Earnings

3603

3663

3842

       

Dividend

750

750

750

Debt Reduction

 

2913

3092

       

VIAB Net Debt

7978

   

CBS Net Debt

9213

 

 

Pro-forma Net Debt

17191

14278

11186

       

Leverage

2.9

2.4

1.8

Owners E Yield on Current Mkt Cap

14.4%

14.7%

15.4%

Owners E Yield at Future Mkt Cap

   

10.3%

       

EV

42130

39217

36125

EV/ EBITDA

7.1

6.5

6.0

EV / EBITDA Exit

   

8

Mkt Cap

24939

 

37374

Dividends

 

750

750

Total Return

   

55.9%

 

 

Downside Case

 

Assumes consensus Op Earnings growth for VIAB (-1.7%) and CBS (0.8%), flat D&A, flat Capex, $750mm annual dividend, remaining FCF to repay debt, 6x EV/EBITDA exit multiple.

 

 

Q3 2019 TTM

2020

2021

VIAB OP Earnings

2462

2420

2379

D&A

215

215

215

VIAB EBITDA

2677

2635

2594

       

CBS OP Earnings

2522

2542

2563

D&A

213

213

213

CBS EBITDA

2735

2755

2776

       

Synergies

500

500

500

Pro-Forma EBITDA

5912

5890

5870

       

VIAB Interest Expense

489

   

CBS Int Expense

412

 

 

Pro-forma Int Expense

901

901

752

       

Normalized Taxes

1054

1049

1079

Capex

354

354

354

Owners Earnings

3603

3586

3685

       

Dividend

750

750

750

Debt Reduction

 

2836

2935

       

VIAB Net Debt

7978

   

CBS Net Debt

9213

 

 

Pro-forma Net Debt

17191

14355

11420

       

Leverage

2.9

2.4

1.9

Owners E Yield on Current Mkt Cap

14.4%

14.4%

14.8%

Owners E Yield at Future Mkt Cap

   

15.5%

       

EV

42130

39294

36359

EV/ EBITDA

7.1

6.7

6.2