News Corp: High-Quality Assets Suffering Conglomerate Discount

(Preview) Initiation of Coverage (NWSA US) (Buy)

Summary

• News Corp is a conglomerate with high-quality assets in property listings portals, professional information products and marquee newspapers.

• A stake in REA alone is worth 71% of its market capitalization, so the rest of the business is valued at a 19% Free Cash Flow Yield.

• News Corp has some high-quality businesses, while others are mostly at least stable; group EBIT should grow at mid-to-high single-digits.

• The current P/E is 15.7x. We believe this includes a conglomerate discount, and the stock deserves a blended P/E of 20x.

• Investors can gain a 20-30% upside from either a long News Corp / short REA pair trade, or by owning News Corp shares outright.

Introduction

We are initiating our coverage of News Corp with a Buy rating and an expectation of a 20-30% upside.

News Corp. is a NASDAQ-listed media conglomerate with a market capitalization of $9.2bn. Shares have fallen more than 40% since their peak in March 2021, and are now at their lowest since November 2020.

The best risk/reward i…