Tuesday, 25 June 2013

New News corp is back to the future

Newscorp's announcement to split into a broadcast and a publishing company has already created value for shareholders, we believe there is still more to come. The broadcast company now known as 21st Century Fox has organic growth with the launch of a new sports network in the US. While the publishing company known as New News Corp will start out with $2.5 billion worth of cash with the opportunity to acquire and consolidate the publishing industry. Going forward both companies have an interesting story to tell but the most misunderstood company appears to be the publishing company which could create an opportunity for investors.

A chance to back Rupert again
If you backed Rupert at the beginning in Adelaide you would have done pretty well. At the investor day Rupert laid out that he has been given the extraordinary opportunity of the chance to do it all over again. Rupert believes there is opportunity everywhere and as stated at the investor day knowledge is the most valuable commodity in the world. Rupert has the track record and $3 billion in cash ($500m available for share buybacks) in News New Corp better than the zero he started out with in Adelaide.

Not just publishing
My stereotyping of New News Corp as being a publishing company is not entirely true. As can be seen below New News owns Fox sports and 61% of Realestate.com.au. Two great Australian assets with good growth outlooks. Australians love their sports, 80% of foxtel subscribers subscribe to sport and Australians love real estate. All that is left is to buy a beer company!

Source: New News Corp investor day

Personally I am not a fan of publishing assets as advertising moves to digital, many newspapers will be structurally challenged. But some publishing assets I believe can do even better digitally. For financial markets timely information is extremely valuable. Having the Wall Street Journal (WSJ) available real time through the internet could save investors or make investors a lot of money with breaking news which was never possible in print. I am a little biased but as a reader the value I get out of the WSJ is much more than price I pay for the subscription. It is also one of the few papers still growing and the demographics of the customers are amazing.

 Source: New News Corp investor day

Time to read the Wall Street Journal
43% of the WSJ readers are millionaires and as News Corp says the other 57% will be millionaires if they continue to read the Journal. Time to be a reader! 

There is also some scope for price increases given the Financial Times charges the equivalent of US$25 a month versus the WSJ at US$22.99. These are digital prices only. The WSJ also has plans to launch local editions in Spanish for Latin American and locally in India.
                                                  
It was interesting to learn from the investor day that 21st Century Fox has agreed to indemnify New News Corp for payments arising out of civil claims and investigations relating to the UK newspaper debacle. Though New News Corp will not be indemnified for any corporate, criminal fines and penalties.

Not just Australian either

                                                       Source: New News Corp investor day

While New News Corp has a lot of Australian assets and has been called the Australian spin off more than 64% of revenue will be earned overseas. This overseas exposure is much larger than most global companies listed in Australia. New News is more American than Australian.

Not an Australian publishing asset
There are many misconceptions relating to New News Corp, it is actually more global than most Australian companies and if you are to own a publishing asset (which do have structural headwinds) the WSJ is the one. Financial information has always been valuable, real time breaking financial news delivered over the internet and not the day after in print becomes much more valuable to readers and followers of the share market. The volatility likely created by American fund managers exiting the "Australian publishing company" to focus on the faster growing American broadcasting assets could create an opportunity in the first few months of listing for local investors to get in at a discount.


Jason

Disclosure: Decisive does not have a position in New News Corp or 21st Century Fox stock
The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.