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

http://www.decisiveassetmanagement.com/

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.

Under Armour the next Nike?

Under Armour (UA) is a sportswear brand that is focused on helping athletes win. UA supplies hi-tech performance sportswear for athletes and casual apparel for weekend warriors like myself. UA recently outlined their aspiration to double sales over the next three years. In their words UA is armoured for growth.

UA built brand credibility by supplying performance apparel first to university sport terms and then to the majors in the National Football League and Major League Baseball. UA has moved on from its background as a "tight t-shirt company" with their signature compression apparel representing only 14% of sales down from 63% in 2005. UA is moving into other categories such as run, golf, underwear and outerwear.

Still just American
UA is very much a North American brand their opportunity is in going global. UA is looking to be the next Nike, the main difference being UA is the leader in apparel and Nike is dominant in footwear. UA has 70% awareness in apparel versus 14% in footwear. Nike has 35% of worldwide market share in footwear while UA released their first football cleat in 2006.

FY12 (bn)	NKE	UA
Market Cap	$54.40	$5.90
Revenue	$24	$1.80
Gross Profit	43.3%	47.9%
International	63.0%	6.0%

UA oversees sales are only 6% of overall with plans to double to 12% of sales by 2016. Locally UA has been in talks with Rebel sport to act as its exclusive wholesale distributor in Australia. With the exception of Japan UA's global market share is insignificant. In Europe and China UA sales are less than $0.10 and less than $0.01 per capital respectively versus $US5 in North American.

A recent initiative has been kids with their alter ego line of performance clothing. The clothes transform these kids and even some adults into superheroes. The line sold out in a matter of weeks.

Another opportunity is in womens wear. Like everyone else they are targeting Lululemon and believe that the womens business could one day be larger than the mens.

CEO pays himself $26,000
The CEO and Founder Kevin Plank owns around 20% of the company, a company he started from his Grandmas basement. As the self proclaimed "sweatiest guy on the football field" Plank designed shirts that would wick the sweat making athletes lighter and faster. Kevin is aligned with shareholders taking a base salary of $26,000 his approximate salary when he founded the company.

Injuries?
Customer concentration is an issue with Dicks Sporting Goods and the Sports Authority combining in 2012 for 22% of sales. Though both these companies have plans to accelerate store growth and UA is still under penetrated especially compared to the category leader Nike. See Merrill research below. Meanwhile the North American operations are expected to grow with plans to double the number of shop in shops from 800 to 1,600 by 2016.

UA has the potential to be a much larger company not many companies have crossed Nike and lived to tell its story. If UA can compete with Nike in North America maybe it can compete against Nike across the globe. As a weekend warrior I'll be watching with interest from the armchair.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has a long position in UA 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.

Internet trends

Kleiner Perkins Caufield Byers (KPCB) have released their 2013 internet trends report. As one of Silicon Valley's premier technology venture capital companies they always have interesting information to share. I have included some of my favourite slides below. The stats regarding technology usage in China are amazing.

The US is dominant in technology with the leading software and hardware companies but the US also dominates in websites with 8 of the top 10 most visited properties worldwide.

In China the amount of time spent on mobile and TV spent is pretty close. Mobiles are the TV for a lot of people in China!

Alibaba which is 24% owned by Yahoo (a reason we have shares) in our opinion has the potential to become one of the largest companies in the world. It is a company of which most of us have never heard but sales on their sites Taobao and Tmall are greater than Amazon and Ebay combined and growing much faster!

You can find the full presentation here

http://www.kpcb.com/insights/2013-internet-trends

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has long positions in YHOO 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.

Trophy buildings

You have to be pretty successful and confident to build a structure that is a testament to your own success. Much like the pharohs of old many corporates have adopted a similar approach calling an end to their success and rein at the top by creating trophy buildings instead of pyramids. Historically trophy buildings have been one of the most consistent contrarian indicators.

The most galling recent example was the AOL Time Warner centre (now without the AOL) at the time the centre was the most expensive building in US history. Construction began in 2000 which turned out to be the end of the dot.com boom. Unfortunately more and more reports are surfacing about the 'strategic purposes' of new buildings being considered at current technology giants.

Time Warner centre no longer the most expensive building

Amazon is hopefully not calling their shares a bubble with an environmentally friendly three giant biospheres (bubble) in the middle of Seattle. Not too extravagant but a little strange.

Amazon's three biospheres

Meanwhile Apple is building what looks to be a UFO. The building will be all curved including glass, just like Apple's products no corners only curved edges! The building would contain 40 foot floor to ceiling pans of concave glass. It will cost an estimated $5 billion to construct according to some reports it is already heading to a $2 billion overrun. At this rate taking the title as the new most expensive building in US history. Thankfully Apple agreed to return an extra $55 billion to investors otherwise investors would have been up in arms over the cost.

Apples iUFO headquarters

No corners, building is all curved

Meanwhile Facebook and Google plan to expand their address, nothing to controversial though with Facebook building a park on the roof top pretty normal behaviour for Silicon Valley.

Trophy buildings don't get much better than Apple's. A UFO definitely beats a pyramid.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has long positions in GOOG, FB 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.