Value Investing

Sean Murphy – Grupo Televisa: Value With A Path To Outperformance

Sean Murphy’s investment thesis Grupo Televisa from the IRA Sohn Conference 2015.

Investment Thesis on Grupo Televisa

  • Leading vertically integrated media company – best-in-class management team
    • US cable and content companies have been trying to achieve this for decades
  • Univision IPO is near-term catalyst to valuation realization
    • TV has 38% ownership stake and gets paid 12% royalty stream
    • Recent changes to foreign ownership rules in US allowing for greater ownership
  • Opportunities for substantial value creation across all Mexican segments
    • Cable #1 Market Share (11% of Mexican HHs)
    • Satellite #1 Market Share (22% of Mexican HHs)
    • Content #1 Market Share (Highest Ratings, Most Viewed)
  • Holding company structure makes SOTP best valuation methodology
    • We view SOTP valuation of $45-57/share of 24-55% upside

Grupo Televisa

TV is Undervalued Today

Grupo Televisa

TV has 24% upside in our Base Case SOTP valuation

  • Given the highly predictable nature of the cash flows, GCC is confident in its $16 / share valuation of Univision’s licensing business
  • This implies that the rest of the business trades at 6.0x 2014 EBITDA (assuming Univision equity value of $7 per share)

Grupo Televisa

New Board Members – Implications?

Grupo Televisa has nominated three interesting Board members in the past month

  • Mike Fries – CEO of Liberty Global
    • We expect Mike Fries will help think about appropriate capital structures to drive levered equity returns and minimize taxes
  • David Zaslav – CEO of Discovery
    • We expect David Zaslav will help TV explore content value maximization on a global scale
  • Jon Feltheimer – CEO of Lionsgate

Early Innings of Cable Roll-Up in Mexico

Cable in Mexico looks like the United States in the late 1980s

– Grupo Televisa has grown its cable RGUs 60% over the last 2 years today reaching 11% of Mexican HHs

– Last quarter, TV rolled out its first competitive triple-play offering in Mexico City

– More than 70% of the population can afford double / triple play services (yet penetration is at ~50%)

– Comcast’s stock is up 24x since 1988

Grupo Televisa

Univision Monetization

Univision represents ~50% of GCC’s Base Case Valuation

  • IPO or monetization event within 12 months
  • Book value is $1.9 billion versus our base case of $4.0 billion
  • 2016 Incentive (Broadcast Spectrum) Auction could be worth $2bn+
  • Univision is the largest holder of 600 MHz Broadcast Spectrum in the US
  • 13 duopolies (9 in top 20 markets) & channel-sharing opportunities in 6 other markets (5 in top 20 markets)
  • Grupo Televisa has a path to control Univision with expected changes to FCC foreign ownership regulations

See full slides below.