Goldman Sachs says the Foxtel sale is good news for News
News Corp will have a stronger earnings profile and be better focused on its digital property growth drivers following the sale of Foxtel to DAZN, Goldman Sachs says.
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News Corp will have a better earnings profile following its sell down of Foxtel if historical performance is a guide, Goldman Sachs says, with the broker remaining positive on the global media stock after the announcement of the $3.4bn deal.
News Corp, which publishes The Australian, and Telstra announced this week they would sell Foxtel and its associated streaming assets Binge and Kayo to UK sports streaming giant DAZN, in a deal which could have major ramifications for Australian sports rights markets.
Goldman Sachs analysts said on Tuesday that they had retained their buy rating on News Corp shares with a price target of $52, with Foxtel arguably a drag on News Corp’s earnings profile.
“We note that News Corp’s financial year 2021-24 earnings before interest, tax, depreciation and amortisation compound annual growth rate was 5 per cent including Foxtel, but 9 per cent excluding,’’ Goldman said in a note to clients.
“In our view, the sale could increase competition for sports rights in Australia given DAZN’s existing presence in global streaming sport rights.’’
Goldman said two thirds of its valuation of News Corp was based on its digital real estate assets, “a sector that we are very positive on given pricing power, large addressable markets and significant scope for digital disruption’’.
“We consider both REA and Move to be quality businesses that can provide News Corp with high-growth opportunities in both Australia and North America and believe the market is not adequately reflecting the fell value of the company’s stakes.’’
News Corp owns 62 per cent of local online property listing group REA and 80 per cent of US real estate listing firm Move, while REA owns the other 20 per cent of Move.
“We are constructive on News with a buy rating given its favourable earnings tailwinds and compelling underlying valuation, with key catalysts looking forward including Australian and US property indicators, consumer spending intentions (driving ad spend) and US economic conditions,’’ Goldman said.
Goldman said downside risks included a severe housing downturn, advertising market headwinds and subscription services execution.
Under the deal, Foxtel will repay a $578m loan to News Corp in full, as well as a smaller loan to Telstra.
News Corp will emerge with a 6 per cent stake in DAZN and a board seat. Telstra will take approximately 3 per cent. Foxtel chief executive Patrick Delany will continue to run the company under the ownership of DAZN.
The deal is expected to complete in the second half of 2025 and is subject to Foreign Investment Review Board approval.
News Corp shares were 0.7 per cent lower at $50.27 on the ASX on Tuesday, after spiking on news of the deal the day before.
Originally published as Goldman Sachs says the Foxtel sale is good news for News
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