liberty media LMCA/B

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LMCA predictions March 18, 2014

Predictions:

  1. Liberty will buy back shares below $135.  A year ago, Liberty was buying back shares below $135.  Since then, Liberty’s stock portfolio has gone up in value.  SIRI is mostly flat while CHTR, LYV, and BKS have gone up.
  2. Liberty will continue selling its Barnes and Noble shares since (A) the share price is rather high and (B) it looks like the Nook will die.  Both Liberty and Leonard Riggio (founder and major shareholder) have been selling.
  3. If Liberty sell shares to pay for share repurchases, Live Nation shares will be the first to go after Barnes and Noble.  I think that Live Nation is largely mature and will not grow as fast as Sirius XM or Charter.  Management strikes me as slightly promotional.  Their metrics (e.g. adjusted operating income) consider their IT investments as growth capex rather than maintenance capex.  In my opinion, their business is one where they have to keep running just to stay in place.  Adding new features simply maintains their competitiveness rather than growing market share.  Lastly, Live Nation shares have gone 62% in the past year.
  4. Both Sirius XM and Charter will continue to grow their free cash flow at high rates in the next few years (at least 10%).

The reason I am putting my predictions down is to test my investment thesis.  If my predictions don’t pan out, then I will need to reconsider my position in Liberty.

I have recently sold some of my Altius Minerals shares (Altius is not buying back its shares) to buy more LMCA shares (LMCA should be buying back more shares).  Liberty’s current assets consist mainly of wonderful companies (Sirius XM and Charter) alongside a mismash of other random assets (LYV, BKS, True Position, Atlanta Braves, a potential lawsuit windfall, cash, and a very large interest free loan from the IRS in the form of deferred taxes).  It is essentially a wonderful company trading at a small discount to its assets.

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More new positions Dec 20, 2013

Long: LMCA

Short: JKS, CSIQ, SPWR, ZU, PCYO, EBIX (puts and common), AMT puts, TTS, YONG puts, AVID

Closed: KWG*, short NUS.TO, short BBRY, short CREE, short TLT

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Tracking John Malone (Part 4) – Live Nation (LYV)

Liberty Media continues to buy shares of LYV on the open market.  I don’t see crazy undervaluation at LYV, though there are a few things about the company that stand out to me.

  1. The accounting is misleading.  Live Nation has lots of non-cash depreciation and amortization charges that deflate earnings.  Its stated depreciation is excessive.  Its true earnings might be somewhere around $120-150M/year.  This suggests an adjusted P/E ratio of around 16-20 (at $12.69/share).
  2. This company is leveraged.  If you account for the debt, its valuation seems a little rich.
  3. Live Nation seems to be a bet on innovation increasing its earnings.

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Tracking John Malone (Part 3) – Liberty Media (LMCA)

Liberty Media is John Malone’s flagship.  Of all of Malone’s companies, I am interested in Media the most since:

  1. It is likely that Malone will continue to put his best ideas into it.  This is probably the company that will grow the fastest.
  2. Continued share repurchases suggest that it trades at a slight discount to the value of its assets.

Liberty Media is difficult to understand.  Historically, John Malone has used complexity as a weapon against institutional investors to mislead them into selling stock at too low a price.  Malone’s complex Liberty companies have always tended to trade at a discount to what its assets are worth.  This allows Malone to continually buy back shares at low prices (this is like free money).  A secondary effect of this is that size becomes less of an anchor on future performance.  Historically, you would have done the best if you had stuck to buying the most complex part of Malone’s empire that he owns the most of.  He keeps the best businesses hidden in his flapship and spins off the mature businesses (e.g. Global’s cable assets), the slow-growing ones, and the not-so-great businesses (e.g. production companies/Ascent).  So, I would expect that his flagship company (Liberty Media) will grow faster than the rest of his empire.

This is a great business at a good price.

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Tracking John Malone (Part 2)

Where I think Malone thinks the media industry is headed

“I think it’s at a point in history when the most addictive thing in the communications world is high-speed connectivity,” he said. “Everywhere in the world that we operate, we’ve just seen the public want more and more data rate. Whether it’s wireless or wired. There’s a big appetite for it. Cable technology right now is the most cost-effective way to deliver that growth in speed.”
– John Malone, CNBC interview (http://www.cnbc.com/id/100637283)

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