Our Entertainment Vue is a portfolio of shares that invests in the world’s leading entertainment and media companies such as Walt Disney, Time Warner, and 21st Century Fox. Every quarter our investment team conducts a thorough review of this portfolio, taking into account recent earnings and related news flow, and provides our investors with an update on its performance and any changes made to the Vue.
Our Entertainment investment portfolio had a bit of a mixed year generating a total return of +8.50% (1 Apr 2017 to 31 Mar 2018) over the last 12 months. This compares with +2.54% for ASX 200 and +14.72% for MSCI ACWI.
The key drivers contributing to performance were Netflix (+99.65%), Twenty-First Century Fox (+14.28%) and RTL Group (+8.10%). Underperformers include Viacom (-31.73%) and AMC Entertainment Holdings (-52.84%).
Three high performing global entertainment stocks
The world's largest internet TV network
Netflix is the world’s largest internet television and movie network. It currently has over 94 million members in over 190 countries enjoying more than 125 million hours of TV shows and movies per day and 10 billion hours of video per month which includes original series, documentaries and feature films.
Netflix has more than 117 million subscribers globally, driven by the growing popularity of its original TV shows and movies and depth and breadth of its licensed content.
Revenue grew more than +30% in 2017, driven by growth in subscriber base and price increases. The price hike is recent, and should boost revenues in 2018 too. The company is also focused on profitability and is targeting a 10% operating margin, up from 7% in 2017.
MSG Networks Inc. Class A (MSGN-US)
The MSG Networks
MSG Networks, Inc. is a holding company, which engages in the sports production, and content development and distribution. It has a regional cable and satellite television network and a radio service. It operates two award-winning regional sports and entertainment networks, MSG Network ("MSGN") and MSG+, collectively "MSG Networks."
The company also owns a live streaming and video on demand platform, MSG GO. MSG Networks is home to some of the top sports teams like New York Knicks, New York Giants and Buffalo Bills.
Earnings that beat consensus estimates
The company recently reported 2Q FY 2018 earnings, which beat consensus estimates. One of the tailwinds that is likely to help earnings for FY 2018 and beyond is the reduction of federal tax rate from 35% to 21%, as a result of tax reform legislation.
There is currently an authorization form the board for up to US$150 million in share repurchases, we see some potential for share buybacks in 2018.
Discovery Communications, Inc. Class A (DISCA-US)
Discovery Communications, Inc. is a global media company that provides content across multiple distribution platforms, including digital distribution arrangements, throughout the world.
The company operates following business segments: U.S. Networks, International Networks and Education. The U.S. Networks segment wholly owns and operates nine national television networks, including fully distributed television networks such as Discovery Channel, TLC, Animal Planet, Investigation Discovery and Science.
More than three billion cumulative viewers in more than 200 countries
Discovery has a massive footprint with access to more than three billion cumulative viewers through pay TV and free-to-air channels in more than 200 countries. It has differentiated content and assets – primarily fact driven programming which is delivered via Animal Planet, Discovery channel, Investigation Discovery, Science, and TLC among others.
Acquisition of Scripps Networks
In March 2018, it completed the acquisition of Scripps Networks, which also added Food Network, HGTV and Travel Channel to its list of assets.
Because of this acquisition, management has flagged synergies, which should enable the company to not only grow earnings but expand margins as well. The market is yet to price in the value of Discovery’s assets, and in our opinion, the stock is an attractive investment at current levels.
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