Review 2022

Last year, high-flying stocks decreased significantly while old, “boring”, cash flow generative businesses fared much better. Since starting this blog, the objective has always been to find cash generative companies with robust prospects available at a cheap valuation. Let’s look at some of the companies that have been mentioned on here:

• Fuchs Petrolub: Shortly after the initial mentioning of Fuchs on this blog, the company initiated a share buyback program and has been continuously buying back shares on the market. So far, the timing has been excellent – bravo, Fuchs! In October, the firm also reiterated its guidance and was able to pass through higher costs to a large degree.

• Altice USA: So far, this company has been the biggest losers since the initial mentioning of this stock on this blog. The elephant in the room is clearly the big debt load, followed by shrinking revenues. With a market cap of slightly above $2 billion, there is a lot of optionality in the company if things don’t go more downhill. Signs for change are there: a new CEO and the accelerated fiber rollout.

• Viatris/Organon: Both spin-offs have been actively working on their new strategies as standalone companies. Viatris closed its sale of biosimilars to Biocon and will continue to adjust its portfolio in the years to come while paying an attractive dividend. Both companies will only be subject to a future potential interest rate increase: Organon’s next larger maturities will be in the years 2028 and 2031 while Viatris’ debt profile is diversified in terms of maturity.

What can we expect from 2023? How should I know? What I know though is that the approach in finding overlooked, cheap stocks will remain ;)

With this, I wish all my readers a Happy New Year and stay tuned!

Warner Bros. Discovery (NASDAQ:WBD)

Intro

There is not much of an introduction needed for Warner Bros. since probably everybody is familiar with the name. Warner Bros. Discovery is an entertainment company which creates as well as distributes content on TV, film or streaming. The portfolio consists, amongst others, of Discovery Channel, CNN, HBO or Warner Bros. Pictures.

Recently, however, there was a big change in the company: In 2021, Discovery acquired WarnerMedia from AT&T and combined Warner with Discovery. Former AT&T shareholders ended up with around 71% of the new Warner Bros. Discovery company.

Since trading of the new Warner Bros. Discovery started in spring 2022, the stock price mainly knew one direction: down. As a result, in a bit less than a year, the stock lost around 60% of its value. One reason might be the lack of a dividend payment, which former AT&T shareholders may not appreciate and made them sell their shares.

 

Valuation

Due to the merger, there is currently some uncertainty regarding the sustainable figures of WBD. In their latest quarterly report, the company indicates adjusted EBITDA of ~$9.2 billion and $12 billion for 2022 and 2023, respectively. The enterprise value (EV) stands at the moment at around $71 billion ($23 billion market cap plus $48 billion net debt), which equals to an EV/EBITDA of approx. 7.7x and 5.9x for 2022 and 2023, respectively. Compared to peers, the valuation seems undemanding.

Although debt levels are elevated at the moment, WBD is working to reduce leverage over the next years.

 

What’s next?

WBD needs time to implement changes, for example in terms of its cost structure, coming from the merger. This will take some time – time that, apparently, many shareholders don’t have. If successful, the firm should trade significantly higher than today and generate a decent amount of cash.

Additionally, WBD’s streaming platform (DTC segment) is still losing money. With further scale and subscribers, WBD will be in a position to show the world one of the biggest (if not the biggest) content library which presents an offering for every taste and age.

 

Current Price

$9.48 per share

 

Disclosure

As with most shares discussed on here, the author is long WBD.