Sumner Redstone is the majority owner of Viacom ($VIA). Last month Redstone sold US$233 million of $VIA shares. $VIA appears to be well and truly caught in the current negotiations between Redstone family interests and creditors. What does this mean for the current valuation of $VIA? We decided to have a look at the intrinsic value of $VIA. The ongoing negotiations between Redstone family interests and creditors will impact the stock – but does this present a longer-term opportunity if this situation artificially depresses the share price in the near term?
Valuecruncher produces a valuation of US$21.22 for $VIA. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 34.5% above the current share price of US$15.78.
- Revenue: Reuters aggregates 17 analysts covering $VIA and these produce mean estimates of 2008 and 2009 revenues of US$14.8 billion and US$15.4 billion respectively. For our analysis we have used US$14.5 billion in 2008, US$14.75 billion in 2009 and US$15.0 billion in 2010.
- Profitability: We have used a flat EBITDA margin of 22.5% to 2010. Reuters has $VIA’s EBITD margin at 53.7% last year (which looks an anomaly) and averaging 27.8% over the last five-years.
- Capital Expenditure: We have assumed capital expenditures of US$300.0 million in 2008 then US$250.0 million per annum moving forward.
- Discount Rate: 11.0%.
- Terminal Growth Rate: 1%.
Our analysis incorporates the cash and debt the $VIA balance sheet – Valuecruncher calculates a net debt number.
$VIA’s intrinsic value appears to be higher than the current share price. The various negotiations between the Redstone family interest and creditors will likely impact the stock in the near term. But if you believe that the company will progress beyond those then the current price represents an opportunity.
Play with our assumptions – what does your analysis say?