ViacomCBS Inc

ViacomCBS Inc (NASDAQ: VIAC) is a leading provider of premium content to the audience across traditional and emerging platforms worldwide.

On 06 May 2021, VIAC will announce first-quarter results for 2021.

Investment Highlights – ViacomCBS Inc – Avoid at USD 40.73

• The revenue and net earnings from continuing operations had shown a downward trend during FY20 as compared to the prior year.
• The content licensing revenue had shown a drop of 3% year-on-year during Q4 FY20 due to the Covid-19 related production delays.
• Over the last three years (FY17 to FY20), VIAC revenue had dropped at a CAGR of negative 1.60%.
• From a technical standpoint, the stock is trading lower than its 20-day simple moving average (USD 43.41), indicating a further downside potential.

Key Risks

• The changes in consumer behaviour, evolving technologies and distribution platforms may adversely impact the business.
• The increasing cost of making films and programs to improve the quality of content may impact the business.
• The loss of affiliation and distribution agreements may significantly impact the financial conditions of VIAC.

Recent Developments

On 05 April 2021, VIAC updated that ViacomCBS Networks International (VCNI) had agreed to acquire Chilevisión from WarnerMedia, a division of AT&T.

On 19 March 2021, VIAC collaborated with MTV Entertainment Group to sign Multi-year Partnership Deal with Raedio to provide Library Access and Original Music.

Financial Highlights (for FY20 ended on 31 December 2020 as of 24 February 2021)

 (Source: Company Website)

• During FY20, revenue dropped 6% year-on-year to USD 25,285 million.
• The Company had USD 3.0 billion of cash on its balance sheet as of 31 December 2020.
• With regards to the liquidity, the Company had USD 3.5 billion of undrawn revolving credit facility during FY20.
• The Company had generated USD 1.89 billion of free cash flow during FY20, benefitted by the timing of production spending and cost savings.

One Year Share Price Chart

(Source: Refinitiv, Thomson Reuters)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

VIAC had shown disappointing cash losses as it burned around USD 339 million of operating cash flow during Q4 FY20. Moreover, the Company had entered streaming services with the launch of Paramount+, which combines live sports, breaking news and entertainment and is built on a portfolio of world-renowned brands. Furthermore, the Company had also announced the acquisition of Chilevision to boost its footprints in Latin America. However, the debt-equity ratio of VIAC remained higher than its industry median of 1.01x during FY20. The stock made a 52-week high and low of USD 101.97 and USD 14.66, respectively.

Based on its mixed Q4 FY20 performance and the valuation method discussed above, we have given an "Avoid" stance on ViacomCBS Inc at the closing market price of USD 40.73 (as of 22 April 2021), while we will keep track of the upcoming catalysts and revisit our stance accordingly.

Discovery Inc

Discovery Inc (NASDAQ: DISCA) is a global media Company serving its audience with the kind of content that informs, entertain, and inspires.

On 28 April 2021, DISCA will report Q1 FY21 results.

Investment Highlights - Discovery Inc – Avoid at USD 38.21

• DISCA had shown a downward trend in revenue and adjusted earnings per share during FY20 from the levels of FY19.
• The free cash flow of the Company had demonstrated a decline of 61% during Q4 FY20 as compared to an equivalent period of the prior year.
• The debt-equity ratio of DISCA remained higher than its industry median of 1.01x during FY20 indicating the Company had more borrowings relative to the industry.
• From a technical standpoint, the stock is trading lower than its 20-day simple moving average (USD 41.31), indicating a further downside potential.

Key Risks

• The advertising revenue might be adversely impacted due to the cancellation and postponement of various sporting events.
• The Company may suffer losses due to asset impairment charges for goodwill and intangible assets.
• The business might get impacted due to the failure of streaming initiatives.

Recent Developments

On 23 February 2021, DISCA had collaborated with Altice USA to allow Optimum and Suddenlink subscribers of Altice to enjoy continued access to Discovery's unparalleled portfolio of networks.

Financial Highlights (for FY20 ended on 31 December 2020 as of 22 February 2021)

 (Source: Company result)

• DISCA had reported a 4% drop in revenue to USD 10,671 million during FY20.
• The advertising segment took a hit as U.S. advertising revenue went down by 5%, and International advertising revenue had shown a decline of around 12% during FY20 as compared to FY19.
• The adjusted earnings per share went down by around 13% and remained USD 3.20 during FY20.
• The free cash flow of the Company went down by 25%, from USD 3,110 million during FY19 to USD 2,337 million for FY20.

One Year Share Price Chart

(Source: Refinitiv, Thomson Reuters)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

DISCA had not given any proper financial guidance for FY21 so far. Moreover, the Company had crossed 11 million total paying direct-to-consumer subscribers worldwide and on track to reach 12 million subscribers. However, DISCA had shown a significant reduction of free cash flow and diluted earnings per share during FY20.  The international advertising revenue had also witnessed a significant drop during FY20. The stock made a 52-week high and low of USD 78.14 and USD 18.56, respectively.

Based on the lack of proper financial guidance and the valuation method discussed above, we have given an "Avoid" stance on Discovery Inc at the closing market price of USD 38.21 (as of 22 April 2021), while we will revisit our stance once the Company release next quarterly results.

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*The dividend yield is subject to change as per the stock price movement.

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