MSG Networks (MSGN)

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Key Statistics

Enterprise Value = $2.607 billion

Operating Income = $314.7 million

EV/Operating Income = 8.28x

Earnings Yield = 11%

Price/Revenue = 2.20x

Debt/Assets = 157%

Debt/EBITDA = 3.98x

The Company

MSG Networks is a product of a spin-off from Madison Square Gardens which occurred in 2015. The company represents the cable division, broadcasting events that occur in Madison Square Gardens. Cable networks pay MSGN fees for their content. The content includes NY sports teas like the Rangers, Knicks, Islanders, Devils. The stock is controlled by the Dolan family.

Sentiment

Sentiment against the cable industry and MSGN are negative. Everyone is worried about cord cutters. As cord-cutting catches on, content delivered on cable TV will become less valuable. As it becomes less valuable, cable channels will receive less revenue for the content that they distribute. When MSGN was spun off, it was also saddled with a massive amount of debt from the parent company, which is a risk.

My Take

While the market is worried about cord cutting, MSGN has a robust business that is throwing off generous amounts of free cash flow. They have been using the free cash flow to pay off debt that they were saddled with in the spin-off, thus improving their enterprise multiple valuation. They also announced a massive share buyback program recently for $150 million. That represents 10% of the existing market capitalization.

Even if cord cutting is a problem, I find it difficult to imagine a scenario where people don’t watch New York sports. Even if cord cutting catches on, it seems unlikely that MSGN’s properties won’t be valuable.

The debt is a problem. I usually avoid leverage whenever possible, but it is difficult to find spin-offs that aren’t significantly leveraged. Leverage, unfortunately, goes with the territory. When a parent unloads a smaller spin-off, they frequently use it as an opportunity to unload their debt onto the smaller firm. This is a major reason that spin-offs are neglected by the market as a whole.

Even with the debt, MSGN should continue to throw off cash flow that will service it. They are also taking the debt seriously and paying it down, thereby improving their enterprise valuation.

The cable industry is also in a state of consolidation. Disney recently purchased a significant portion of Fox. Starz was also bought out last year. MSGN is an attractive buyout candidate at its current valuation. In fact, selling the company may have been one of the reasons this was spun off in the first place: to isolate the cable entity for a potential acquirer.

PLEASE NOTE: The information provided on this site is not financial advice and it is for informational and discussion purposes only. Do your own homework. Full disclosure: my current holdings.  Read the full disclaimer.

4 thoughts on “MSG Networks (MSGN)”

  1. Hi,
    Great Work!
    I was curious to know, from where do you get the 10 year financials of any American company for carrying out an analysis in Excel?
    Most of the websites I was looking at do not offer this data for free. The best I could get in this respect was a website called Amigobulls but even there you only get 5 year financials of any company.
    I am basically an investor from India, so I get the financials of all Indian companies from http://www.moneycontrol.com for 10 years or even more (if the company is listed for that long) for free and even copy it into Excel for free. So I found it pretty frustrating to not find a reliable website that could provide financials of the largest universe of listed businesses in the world – American businesses!
    Hope you can help me with this.

    Regards,
    Pranjal Kothari

    Like

  2. Unfortunately, in the United States, the only way I know how to look at 10 years worth of information is to do it manually. The best place for information about companies is manual and ugly: go to sec.gov and type in the ticker and start combing through the 10-k’s, then plug the information into excel. If you or anyone else knows of a way to export years of financial statement data into Excel, I’m all ears!

    Google Finance makes about 5-years of information available if you go there and type in a ticker. Unfortunately, they don’t provide the ability to export to Excel.

    With that said – there has been backtesting of cyclically adjusted valuation ratios vs. 1-year ones. The one year ratios do just fine.

    Like

    1. Well,
      That’s bad news for me because I’m just not used to the drab drudgery of feeding things in manually. With moneycontrol I’ve gotten into this habit of copying all FS into excel in a matter of minutes and doing all the number crunching in a few more minutes within excel, so this comes as a big negative surprise for me.
      Having said all that, this should be good news for you if you ever choose to analyze any Indian company (when valuations are in your favour) because for them you can very conveniently copy 10 or more year financials into excel. And there’s not just moneycontrol, we have websites like screener.in, ratestar.in which also offer 10 year financials copy-able into excel. You might want to explore that, because once you get financials into excel that fast you can accelerate and complete your quantitative analysis under 10 minutes for any company.
      If you ever feel you need help with Indian companies, especially in this respect, feel free to get in touch with me.
      Nice talking to you,
      Regards,
      Pranjal

      Like

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