Other issues with Charter are debt of nearly $100 billion against a market value of $50 billion and limited free cash flow this year. But the company trades well below its estimated replacement value of its broadband and cable network, and dominates the industry with Comcast. With Liberty Broadband, investors can win two ways -- a continued rally in Charter and a narrowing of the discount.
A Live Discount
Liberty Live stock has been flat since it was spun out of Liberty Sirius last year, though the initial investment has paid off handsomely. The tracking stock now fetches around $36, an estimated 40% discount to the value of its stake in Live Nation, worth $6.5 billion, plus an estimated $300 million in other assets, notably a 7% profits interest in the owner of the Denver Nuggets basketball team and Colorado Avalanche hockey team.
Why the big discount? Less liquidity in the tracker relative to Live Nation and no clear path to a tax-free spinoff. Maffei said in May that a "tax efficient" resolution of Liberty Live is "more complicated" than for other Liberty companies.
Seaport Research analyst David Joyce has called the Liberty Live discount "inexplicably wide," and Jason Bazinet of Citigroup sees it as a cheap play on Live Nation, which he views as inexpensive given a Justice Department lawsuit against the company. Live Nation trades around $93, close to what Bazinet sees as its breakup value if the Justice Department wins. If Justice loses, it could be worth $130.
Success in Sports
The Atlanta Braves, which were spun out of Liberty Media a year ago, are one of only two public plays on major U.S. sports teams -- the other is Madison Square Garden Sports, owner of the New York Knicks and Rangers -- and the stock has returned 15% over the past 12 months. The Braves are consistently one of the best teams in Major League Baseball, and the team's loyal fan base covers a huge territory in the South. The company also owns a valuable real estate development called the Battery around the Braves ballpark, Truist Park.
The nonvoting shares trade at $43, which values the company at about $2.7 billion, but Marangi values the stock in the mid to high $50s, based on a team valuation of at least $3 billion and the value of the real estate.
The best way to close the gap between where the stock trades and what the team is worth would be to sell the company, which many analysts and investors think Malone is poised to do in the next year. "The Braves are a well-run organization," Joyce says. "They have one of the highest levels of fan engagement in baseball. It's free to be acquired by a billionaire who wants a trophy asset."
Tax expert Robert Willens sees no impediment from a tax standpoint to a sale, and Maffei did nothing to play down the possibility when asked about it in May. "We're always trying to be good stewards of shareholder value, and we'll see what gets presented or not," he said.
Formula One doesn't need a sale for the investment to pay off, even if a deal is always a possibility. Liberty bought the business in 2016 and has since significantly boosted profitability. Analysts think there is more to come from greater sponsorships and more lucrative TV rights. The sport's popularity has increased particularly in the U.S., due in part to the Netflix reality show Drive to Survive. A new race in Las Vegas has also generated buzz.
"This is a rare asset, a global sport," says Pivotal's Wlodarczak.
While a tracking stock, Formula One doesn't carry a tracker discount. Its shares have gained 26% this year, and its deal to buy motorcycle racing circuit MotoGP could offer another growth opportunity. The voting A shares, which trade at a discount to the nonvoting stock, fetch around $73, or almost 25 times projected 2025 free cash flow of about $3 a share.
"Free cash flow is just starting to take off," says Wlodarczak, who says investors can buy and hold Formula One. He thinks it will ultimately be sold and that Liberty could get about $30 billion for the franchise, or more than $100 per share, up nearly 40% from Thursday's close.
Write to Andrew Bary at andrew.bary@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
July 26, 2024 11:01 ET (15:01 GMT)
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