NWSA – Base Case iCDS 150bps, Negative Case iCDS 316bps, 2029 3.875% Bond YTW of 5.987%, iYTW of 5.247%, Ba1 Rating from Moody’s, IG4+ (equivalent to Baa1) Rating from Valens, Low Refinancing Need
January 6, 2023
- Credit markets are slightly overstating credit risk, with a cash bond YTW of 5.987% relative to an Intrinsic YTW of 5.247% and an Intrinsic CDS of 150bps. 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 mostly 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 going forward. 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 Q1 2023 (11/8/2022) call highlights that management sentiment was negative when talking about growth, digital real estate, and content and publishing. Management may lack confidence in their ability to sustain revenue growth at REA, in their advertisement businesses, and across recently acquired content properties. Moreover, they may lack confidence in their ability to maintain record performance and drive further recovery in their Australian businesses, and they may be downplaying concerns about declines in financial service revenues.
