walt disney company 2015-05-13

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Initial Coverage Report

2015-05-13Recommendation: Buy



• 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)

•

52 W Low: $78.54 (2014-10-15)

•

YTD Change: 15.98 %

•

Revenues: 50 707

•

Gross Profit: 17 400 (34.3 %)

•

Operating Income (EBIT): 12 208 (24.1 % margin)

•

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



• 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.

–


•

Studio Entertainment – Marvel on top three grossing films ever, Star Wars VII expected to enter list

– Q2 Operating Margin of 25 %

–

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

–


• 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



•

Ecosystem of complementing divisions – Studio creates franchises for parks, products and interactive

•

Intellectual assets are cash cows – that fans gladly see milked

•

At same time push creatively, Pixar and Disney animation have created several new hits over last years

•

Started creative turnaround with Pixar acquisition under Bob Iger in 2006, exceptional history of profiting on franchisessince

•

Major source of profits is Media Networks where ESPN is the largest source - sports is only area where TV-viewership isstill growing

•

Risk with dependency on content creation is consistency, but the track record is impressive

Media and entertainment platform with beloved trademarks



•

Revenue CAGR of 4.9 % over past ten years

•

Net Income CAGR of 12,6 % over past ten years

•

Gross margin increase from 13 % to 34 %

•

Driven by improved pricing power and operating leverage from successful franchises

•

CEO credited with exceptional cost control over all divisions

Steady growth and exceptional margin expansion

0

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TTM Net Income

34%

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TTM Revenue Gross Margin



Increased returns and decreased cost of financing

17,8

9,55

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ROE ROA

0,00

2,004,00

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ROIC WACC



Increasing dividends and share buybacks while decreasing debt level

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500

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1 500

2 000

2 5003 000

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Dividends Share Repurchases Div. Yield

30,1

0,78

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D/E in % Net Debt/EBITDA

•

“High Grade Credit” from all rating institutions

(Moody’s - A2, S&P – A, Fitch – A)



Trades at a historical premium

22,6019,14

17,18

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T12M PE-ratio Avg. P/E

13,43

11,5610,69

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EV/T12M EBITDA Avg. EV/EBITDA

P/E as of today is 23.4



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

•

Time Warner – Warner Bros., CNN, HBO, DC Comics

•

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



!

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

!

Higher cost of acquiring sports programming

!

Industry challenge in transition to new distributionplatforms

!

Dependent on continued creativity

Recent Outperformance



!

Quality company with several strong trademarks and much roomfor continued growth

!

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 %

walt disney company 2015-05-13

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