.png)
Happy Friday and the weekend ahead! Welcome to this 28th post of investing, not rocket science! Investing Doesn't Have to Be Rocket Science: this is our Non-Expert Guide to Portfolio Management.
Last week Friday, we looked at the FOMC and EU interest rate decisions (You can read about it in post 26 here). Today, we begin with the interest rate decision from the Bank of England. According to the policy summary released yesterday (May 11th 2023):
· BoE’s Monetary Policy Committee voted to raise the Bank Rate by 0.25% to 4.5%
· UK GDP is expected be flat in H1 2023, although underlying output, excluding estimated impact of strikes and extra bank holidays, is projected to grow modestly.
· Economic activity has been better than expected and path of demand is expected to be stronger than expected in the February report.
· Unemployment rate is expected to remain under 4% until the end of 2024.
· CPI inflation was 10.2% in Q1 2023 and is expected to fall sharply from April’23 as large price increases one year ago drop out of the annual comparison.
· Food price inflation is likely to fall slower than expected in the February report.
· Inflation below 2% in two years.
· See illustrations below on Interest rates, Inflation expectations and Forecast summary.
In the press conference, the BoE added:
· it expects wage increases to temper without having to increase unemployment.
· Gas pricing mechanisms specifically in the UK (which are set every six months) is the reason for the lag in the fall of headline inflation compared to the US and EU (where inflation has likely peaked out). Also for this reason, Core CPI in the UK follows the similar trend as seen in the US and EU.
A quick recap of this blog series (investing, not rocket science) so far:
In the 1st post: I defined a basic portfolio framework. The objective of this million dollar portfolio is beat inflation and an equity index. The investment style presented here is active portfolio management, without the use of leverage and a time horizon greater than 5 years. The benchmark index is the MSCI ACWI IMI. Typically, there are two posts a week, which includes details of the portfolio and actionable evaluations (Mondays and Fridays).
From posts 2 to 20: I have evaluated 67 stocks and 4 potential bond additions. The portfolio is long 16 stocks, 1 Bond and short 1 stock.
Posts 21 to 27 were focused on the Q1 2023 earnings announcements, particularly of stocks in the portfolio and in the watch-list. You can read all about it in the previous posts here: https://www.claritech.app/blog
You can click on the charts, graphs or illustrations to expand or zoom in. There is no remuneration received to evaluate specific companies or to add to the portfolio or the watch-list. The Amazon adverts you see are the source of revenue for this free blog (subject to purchases or subscriptions).
Q1 2023 Earnings - Walt Disney
Walt Disney announced its Q1 2023 results on Wednesday (10May’23). The company posted earnings of US$ 0.93 per share and US 21.81B in revenue. Misses analyst expectations on EPS and met expectations on Revenue.
According to a statement from the company, revenues for the quarter grew 13% in Q1. EPS in Q1 2022 was US$1.08. Segments: revenues at Disney Media and Entertainment Distribution grew 3% YoY while Disney Parks grew 17%. Operating income at Disney Media and Entertainment Distribution fell -42% YoY while it grew 23% at Disney Parks.
Comparing streaming services between Netflix and Disney
Total Paid Memberships in Q1 (NFLX / DIS): 232.50 Million / 231.3 Million
Net Paid Member additions in Q1 (NFLX / DIS): 1.75 Million / (3.4) Million
Average Revenue Per User in Q1 (NFLX / DIS): ~ $11 / ~ $6
Depending on the business unit, competition to Walt Disney could be Netflix, Prime Video, WarnerBrosDiscovery, Comcast and ViacomCBS.
Today, we look at a comparative analysis of these companies and evaluate if the portfolio could have an allocation to any of these Media and Entertainment stocks.
Comparative Analysis: In this four part evaluation, I compare fundamentals of these corporates and look at recent trends in financials and growth. I use a basic scoring mechanism (it began in post 14, I call it a ‘semi-quant’ – you can read about it here) to help overcome any bias.
Part 1. Company Financials:
1. By revenues, Comcast is the largest of these corporates with US$ 120B of TTM revenue followed by Walt Disney at US$ 86B. Netflix, Warner Brothers and Paramount earn revenues between US$ 30 and 40B.
2. By Market Cap / Revenue multiple (one parameter to assess how expensive a company is): Paramount and Warner Brothers trade below their annual revenues (0.3x and 0.7x respectively). This does not necessarily mean they are less expensive, it could also mean the company is struggling. More of that as this evaluation continues. Netflix trades at 4.8x its revenues, while Comcast and Disney are at 1.4x and 1.9x respectively.
3. Unlevered Free Cash flow margin (indicative of financial health): is positive for all companies. In the trailing twelve month period (TTM), Warner Bros, Comcast and Netflix have generated 14% to 17% free cash flow from their revenues, while Paramount and Disney have generated 9.7% and 4.8% respectively.
4. Earnings yield (inverse of the PE ratio) is highest for Paramount at 40%, followed by Comcast at 7.5%. Netflix and Disney have an earnings yield of 2.7 to 2.9%.
5. At the end of this part of the evaluation, Paramount and Comcast lead.
Part 2. Efficiency, Valuation and Volatility:
1. Operating income margin: Comcast and Netflix have relatively high margins between 16% and 19%, followed by Paramount and Disney at 8%. Warner Brothers has generated an operational loss (-7.5%).
2. PEG ratio (accounts for growth in earnings and price): Warner Bros and Paramount have the lowest PEG ratios followed by Disney at 0.72. Netflix and Comcast have negative PEG.
3. Debt / Equity (compares amount of Debt a company to its Equity): Disney has a low Debt to Equity at 49%. Netflix and Paramount are at 78% while Comcast and Warner Brothers are at 122 and 105% respectively.
4. Price to tangible book value (discounts intangible assets): Netflix at 16x and Walt Disney at 27x.
5. Realized Volatility (volatility of the stock in the last 1 year): Disney and Comcast between 30 and 36% volatility, while Netflix, Warner brothers and Paramount have a volatility between 50% and 63%.
6. At the end of this part of the evaluation: Paramount and Comcast lead.
Part 3. Trends in Financials:
1. Unlevered free cash flow margin (3 years): while Warner Bros is at the highest, it is falling and so are the margins for Paramount and Disney. The two companies with a relatively stable margin are Netflix and Comcast.
2. Diluted EPS (last 3 years): in this section, I am interested in the trend and not the value (which is addressed in other parts of this evaluation). Stable trends for Netflix and Disney. Declining trends for Paramount, Comcast and Warner Bros.
3. Operating Income Margin (3 Years): Comcast and Netflix have a high and stable operating income margin (between 17 and 18%). Disney sees rising margins, although relatively lower at 8.4%. Paramount and Warner Brothers see declining margins.
4. At the end of this part of the evaluation: Comcast and Netflix lead.
If you or someone you know is interested in receiving a free remote consultation on their investment portfolio, regardless of location, please don't hesitate to contact us.
This series is for information purposes only without regard to any particular investment objective, financial situation, suitability or means. It is not be construed as a recommendation, or any other type of encouragement to act, invest or divest in a particular manner (whether explicit or implicit). We recommend that you are familiar with the terms of use.
Part 4. Valuation and Dividends.
1. Upside potential using two methods: Investing Pro uses a quantitative models to assess fair value and potential upside (this is an objective method) while the analysts fair value estimate and upside potential is subjective to the analyst. Both are important and an average of the two tends to provide a reasonable indication of the potential upside.
2. According to analyst estimates, Warner Bros has the most upside potential (61%) among these corporates. Something that this evaluation does not agree with.
3. On Average: WBD has most upside potential, followed by Paramount, Disney, Comcast and Netflix in this order.
4. Dividend yield: Paramount and Comcast lead on dividend yields.
At the end of this evaluation: Comcast and Paramount look to be potential additions to this portfolio. I will evaluate their Q1 earnings next week and look to make a decision.
In the next post, we begin with the weekly portfolio review and assess the Q1 earnings of the financial stocks in the portfolio. Thank you for your time! See you in the on Monday!
If you would like us to evaluate specific stocks or you want to share your experience (even if they are unpleasant), please visit the contact page and submit a feedback.
Visit our social media pages and please subscribe, follow, like!
Comments