Slick Fox off and running but what of the straggler?

Rupert Murdoch has come up with a new moniker for his US cable entertainment business: 21st Century Fox. Free from the shackles of print and publishing assets, the investment community is expecting it will set off on an earnings romp.

But what of the demerged print, publishing and Australian cable business? With only a few months before it is set adrift there has been scrutiny around how it will look. We know Murdoch's long-term lieutenant, Robert Thomson, will run the operations and Murdoch will retain the chairmanship and the majority shareholding.

It's also a fair bet that US investors keen to hold the new 21st Century Fox will not be natural owners of the new News Corp.

Demergers are usually beneficial for investors because the sum of the two listed entities is usually worth more than the original whole. But whether the News entities follow suit depends on two things. First is the re-rating of 21st Century Fox and the second is the earnings performance of the demerged print operations.

One factor contributing to the uplift in value of demerged companies is that one, or both, become prey to takeover offers. This won't come into play given Murdoch will retain a controlling stake in both.

How the old media News Corp will fare depends on whether the profits from growth businesses slotted into the company will be able to compensate for the declining earnings from the print and publishing assets.

According to Macquarie Equities, they will. It forecasts the new News will come to market at about $10 billion, or at $4.30 per share.

The US, British and Australian newspaper operations are in earnings decline. Macquarie says the News and Information Services segment which contains these assets plus the newspaper inserts business will have earnings before interest and tax decline 10.7 per cent a year for the next three years.

Australian print earnings before interest tax depreciation and amortisation were $372 million in 2012 and Macquarie says this will drop to $163 million by 2017.

Macquarie reckons these negative forces will be more than offset by positive momentum from the 50 per cent stake in pay TV operator Foxtel, the 100 per cent stake in Fox Sports, the 61.6 per cent interest in digital real estate operator REA and unwinding losses in the Amplify Education business.

The Foxtel forecasts are built around modest growth in revenue per customer and minimal subscriber growth but significant cost savings from the Austar merger.

Investors need to judge whether News can keep a lid on the declines in earnings from its print businesses. The News and Information division experienced a decline in earnings of 23.5 per cent in 2012 and is expected to decline another 26 per cent in 2013. Macquarie estimates the rate of decline will slow to 10.3 per cent in 2014 and 6.8 per cent the year after.

If Macquarie is right then the new News Corp has a reasonably bright future with a compound annual growth rate from 2014 to 2017 of 7.6 per cent. But just in case the share price experiences a bit of a lagging feeling, there is $2.6 billion of cash in the News can to fund a share buyback.