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The powerhouse cable network division posted another stellar performance, rising 7 per cent off an already impressive base to $US945 million ($914 million). It now accounts for more than 60 per cent of the group's earnings.
The much-maligned free-to-air television division also registered strong growth, up 19 per cent in the quarter to $US224 million.
On the negative side, the Italian satellite pay TV broadcaster, Sky Italia, turned in a loss of $US20 million (versus a $US6 million profit a year ago), as it lost 28,000 subscribers and ramped up programming investments to stem the tide.
Filmed entertainment saw earnings decline 3 per cent to $US383 million.
Outlook The solid quarterly result was partly overshadowed by a cut to News Corporation's operating earnings growth guidance for the full year, from "high single to low double digit" to a "mid-to-high single digit" percentage gain.
While disappointing, the magnitude of the downgrade was not material.
Furthermore, one of the main causes of the downgrade was the structural problems afflicting its Australian newspaper assets — no longer a surprise to anyone.
What we are focused on, and remain attracted to, is News Corporation's diverse portfolio of leading electronic media content assets, most of which demonstrate either very strong growth outlook (the cable-network division) or remarkable resilience (film, free-to-air TV).
Importantly, there are plenty of catalysts for the market to reappraise the underlying value of these assets, as the proposed split of the print businesses into a separately listed vehicle remains on track for mid-2013.
Price While the stock price slumped 4 per cent on the results day, due to market disappointment over the cut in earnings guidance, it has more than recovered since then. Over the past six months, the stock has surged 23 per cent; for 12 months it is up 53 per cent — easily outperforming the overall market.
Worth buying? The downgrade in News Corporation's earnings guidance for the full year was disappointing. However, its magnitude was immaterial and its importance pales in comparison with the continuing strong growth of the cable network division and the remarkable resilience of the film and free-to-air TV assets.
The company's balance sheet remains robust (gearing of only 30 per cent and an interest cover of six times), notwithstanding $US6 billion in stock repurchases over the past eight months, with another $US4 billion left in the buy-back program.
While the stock is trading at more than 16 times fiscal 2013 consensus EPS estimates, this quickly drops to less than 14 times the following year, due to the strong earnings growth outlook. Consequently, we believe the stock is worth buying at current levels.
Frequently Asked Questions about this Article…
News Corporation's second-quarter results beat expectations: normalised net income was up 5% and earnings per share (EPS) jumped 13%.
The cable‑network division rose 7% to US$945 million and now accounts for more than 60% of the group's earnings, making it the company's primary growth engine.
Free‑to‑air television registered strong growth, rising 19% in the quarter to US$224 million, while filmed entertainment saw earnings decline 3% to US$383 million.
Sky Italia reported a loss of US$20 million versus a US$6 million profit a year earlier; it lost 28,000 subscribers and increased programming investments to try to reverse the trend.
Management trimmed guidance from "high single to low double digit" growth to a "mid‑to‑high single digit" percentage gain. The downgrade was driven in part by structural problems at its Australian newspaper assets, although the article describes the magnitude of the cut as not material.
The article highlights News Corporation's diverse electronic media assets (strong growth in cable networks and resilience in film and free‑to‑air TV) and notes the proposed split of the print businesses into a separately listed vehicle, which is on track for mid‑2013, as potential catalysts for market reappraisal.
The stock fell about 4% on results day but recovered thereafter; it has risen roughly 23% over the past six months and about 53% over 12 months. The article concludes that, given the growth outlook and balance sheet strength, the stock is worth buying at current levels.
According to the article, News Corporation has a robust balance sheet with gearing of about 30% and an interest cover of six times. The company has repurchased US$6 billion of stock over the past eight months and has about US$4 billion remaining in its buy‑back program.
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