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Initial Coverage Report
2015-05-13Recommendation: Buy
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• Media and Entertainment Conglomerate
!
Founded by Walt and Roy Disney in 1923
! Headquartered in Burbank, California
!
130 000 employees•
CEO & Chairman – Robert “Bob” Iger, since 2006
Source: Bloomberg as of yy/mm/dd
•
Listed on New York Stock Exchange
•
Market Cap: $185 354 million
•
Share Price: $109.24
•
52 W High: $113.3 (2015-05-05)
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52 W Low: $78.54 (2014-10-15)
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YTD Change: 15.98 %
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Revenues: 50 707
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Gross Profit: 17 400 (34.3 %)
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Operating Income (EBIT): 12 208 (24.1 % margin)
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Net Income: 8 034 (15.8 % margin)
Financial Snap-shot TTM (millions of USD)
Sales by geography
Equity related information
Company profile
75%
13%
8%
3%
North America
Europe
Asia Pacific
Latin America andOther
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• Revenue up 7 % YoY while EPS up 14 % at $1.23 vs. est. of $1.11
• Media Networks – Cable Networks and Broadcasting
– 13 % YoY growth in revenue
–
Q2 Operating Margin of 36 %
–
ESPN programming rights majority of contracts expire earliest 2021 onwards
• Parks and Resorts –
New park opening in Shanghai
–
6 % YoY revenue growth from higher spending on increased prices fortickets, food, hotels etc.
–
Q2 Operating Margin of 15 %
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Studio Entertainment – Marvel on top three grossing films ever, Star Wars VII expected to enter list
– Q2 Operating Margin of 25 %
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Revenue down 6 % (Avengers not included, since then #1 every market, alsoQ2 last year had huge success of Frozen)
• Consumer Products – Toys and other merchandise still driven by last years Frozen
–
10 % YoY revenue growth
–
Q2 Operating Margin of 37 %
• Interactive –
Video games, mobile apps
– Q2 Operating Margin of 11 %
Q2 of fiscal year 2015 beat estimates both top and bottom line
44%
31%
14%
9%
2%
T12M Revenue by Segment
Media Networks
Parks and Resorts
Studio Entertainment
Consumer Products
Interactive Media
54%
21%
12%
12%
1%
T12M Net Income by Segment
Media Networks
Parks and Resorts
Studio Entertainment
Consumer Products
Interactive Media
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Ecosystem of complementing divisions – Studio creates franchises for parks, products and interactive
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Intellectual assets are cash cows – that fans gladly see milked
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At same time push creatively, Pixar and Disney animation have created several new hits over last years
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Started creative turnaround with Pixar acquisition under Bob Iger in 2006, exceptional history of profiting on franchisessince
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Major source of profits is Media Networks where ESPN is the largest source - sports is only area where TV-viewership isstill growing
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Risk with dependency on content creation is consistency, but the track record is impressive
Media and entertainment platform with beloved trademarks
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Revenue CAGR of 4.9 % over past ten years
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Net Income CAGR of 12,6 % over past ten years
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Gross margin increase from 13 % to 34 %
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Driven by improved pricing power and operating leverage from successful franchises
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CEO credited with exceptional cost control over all divisions
Steady growth and exceptional margin expansion
0
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
9 000
TTM Net Income
34%
0%
5%
10%
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35%
40%
0
10 000
20 000
30 000
40 00050 000
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TTM Revenue Gross Margin
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Increased returns and decreased cost of financing
17,8
9,55
0,0
2,0
4,0
6,0
8,0
10,0
12,0
14,0
16,0
18,0
20,0
ROE ROA
0,00
2,004,00
6,00
8,00
10,00
12,00
14,00
ROIC WACC
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Increasing dividends and share buybacks while decreasing debt level
0,00
0,50
1,00
1,50
2,00
2,50
0
500
1 000
1 500
2 000
2 5003 000
3 500
Dividends Share Repurchases Div. Yield
30,1
0,78
0,00
0,50
1,00
1,50
2,00
2,50
0,0
10,0
20,0
30,0
40,0
50,0
60,0
D/E in % Net Debt/EBITDA
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“High Grade Credit” from all rating institutions
(Moody’s - A2, S&P – A, Fitch – A)
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Trades at a historical premium
22,6019,14
17,18
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5,00
10,00
15,00
20,00
25,00
30,00
T12M PE-ratio Avg. P/E
13,43
11,5610,69
0,00
2,00
4,00
6,00
8,00
10,00
12,00
14,00
16,00
EV/T12M EBITDA Avg. EV/EBITDA
P/E as of today is 23.4
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Name Mkt Cap (USD)Current
P/E
Est P/E
Q2 2016
Est P/E
Q2 2017
EV/
EBITDA
EV/EBITDA
Q2 2016P/B
The Walt Disney Co. 186 830 23,4 19,1 17,2 13,4 11,6 4,1
Average 117 553 20,0 19,3 16,5 11,8 9,9 3,4
Comcast 146 743 19,1 17,8 15,6 8,0 7,4 2,8
Time Warner 69 456 18,5 18,1 14,6 14,1 9,9 2,9
21st Century Fox 67 185 18,7 19,3 16,2 11,7 10,6 3,8
•
Comcast - Universal Pictures (and Parks & Resorts), NBC• World’s largest television networks and filmed TV & entertainment company in terms of revenue – Walt Disney Company 2nd and
Time Warner 3rd.
• Most similar peer, but - "The Worst Company in America" by The Consumerist in 2014
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Time Warner – Warner Bros., CNN, HBO, DC Comics
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21st Century Fox – 20th Century Fox, Fox News & Sports
Premium valuation compared to peers is justified
NameGross
Margin
Op.
MarginROE Dvd Yld D/E
Net
Debt/
EBITDA
5yr CAGR
Revenue
5yr CAGR
Pre-tax profit
The Walt Disney Co. 34,3 23,9 17,8 1.1 % 30,1 0,8 7.8 % 16.7 %
Average 45,4 21,4 17,3 1.4 % 77,0 1,8 4.9 % 10.4 %
Comcast 70,4 22,0 15,3 1.7 % 87,9 1,8 14.2 % 17.4 %
Time Warner 41,8 20,6 14,5 1.7 % 92,9 3,2 2.4 % 5.4 %
21st Century Fox 34,9 19,1 21,6 0.9 % 97,3 1,4 -4.9 % 2 %
Higher operating marginsHigher ROELower D/E
Lower Net Debt/EBITDAHigher top line growth
Higher bottom line growth
17 % current P/E and EV/EBITDApremium compared to average of peers
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!
Diversified earnings with profitable growth and highlyanticipated movies in pipeline
!
Unique position to utilize intellectual assets and
relatively unexploited markets (i.e. Mainland China)
!
Strong cash flows make possible buybacks and
increased dividends
Upside Downside
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Higher cost of acquiring sports programming
!
Industry challenge in transition to new distributionplatforms
!
Dependent on continued creativity
Recent Outperformance
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!
Quality company with several strong trademarks and much roomfor continued growth
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Popular franchises and networks! Track record of creativity and successful strategic acquisitions
!
Diversified business model with clear competitive advantage
!
Cost efficient and financially stable with history of increaseddividends and possibility of another buyback program
!
Historical and peer valuation premium warranted due to higher
profitability and growth with lower financial risk
10 largest shareholders
Motivation
Investment Conclusion
Name % of shares held
BlackRock 4.94 %
Vanguard Group 4.85 %
State Street 4.18 %
Fidelity 2.7 %
State Farm 2.48 %
Capital World Investors 1.85 %
Northern Trust Investments 1.4 %
T. Rowe Price Associates 1.25 %
Government Pension Fund of Norway 0.90 %
Norges Bank 0.87 %
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