NWSA – Base Case iCDS 118bps, Negative Case iCDS 193bps, 2029 3.875% Bond YTW of 6.779%, iYTW of 5.019%, Ba1 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need
October 11, 2022
- Credit markets are materially overstating credit risk, with a cash bond YTW of 6.779% relative to an Intrinsic YTW of 5.019% and an Intrinsic CDS of 118bps. Furthermore, Moody’s is overstating NWSA’s fundamental credit risk with its Ba1 credit rating three notches below Valens’ IG4+ (Baa1) credit rating.
- Incentives Dictate Behavior™ analysis highlights positive signals for credit holders. NWSA’s compensation metrics should generally drive management to focus on all three value drivers: margins, turns, and growth, which should lead to Uniform ROA expansion and increased cash flows available for obligations. Moreover, while most management members are not material owners of NWSA equity relative to their average annual compensation, Executive Chairman Murdoch’s high equity ownership indicates he should be able to influence management to be well-aligned with shareholders for long-term value creation.
- Earnings Call Forensics™ of NWSA’s Q4 2022 (08/09/2022) call highlights that management is confident Dow Jones, Digital Real Estate Services, and Book Publishing were able to surpass their annual performance benchmarks.
