The free market operates on the principle that a good or service is worth what someone will pay for it, and Lionsgate is banking on that. Analysts note that while Lionsgate-the-company is worth about $4.8 billion, the sum of its parts – Lionsgate-the-library-tv-studio-and-Starz – is worth $8.7 billion. How does it work?
To illustrate this disparity, meet with The Rosenblatt Securities analyst Barton Crockett. He wrote in a Friday morning note to clients (obtained by Indiewire) that Lions Gate Entertainment Corporation as-is is worth $4.8 billion (enterprise value = market capitalization + debt + cash), or about half of MGM.
However, Crockett believes Lionsgate’s library alone, which includes the “La La Land” and “John Wick,” “The Hunger Games” and “Twilight” franchises, has a net worth of $5.525 billion. In other words, the archives are worth more to Wall Street than the entire company as it is currently structured. The TV production is worth another $1.6 billion, Crockett wrote, as is the entire Starz business.
After a strong Friday rally of nearly 14 percent, shares of Lionsgate Entertainment Corporation (LGF) closed at $11.57 – what the company has study stands on its own, Wells Fargo stock analysts believe. The other half of Lionsgate, Starz, is only worth $1-$2 a share, Steven Cahall and his team wrote in a Thursday evening note to clients. (Crockett’s sum-of-the-parts valuation puts LGF at a $24-per-share price target; as it stands, Rosenblatt sees a $16-per-share future.)
All Lionsgate executives could talk about on Thursday’s conference call was the library, which generated record annual revenue of $884 million. The management team also took the time to acquire Quentin Tarantino’s “Kill Bill Vol. 2″ library. 1, “KillBill vol. 2” and “Jackie Brown”.
By comparison, Starz is viewed by the market as an even-run. The home of “Outlander” and “Power” has been hit hard by the cord cut and now faces a rocky streaming ecosystem cluttered with larger players scaling back.
An analyst on Thursday’s earnings call asked whether the trend would affect the future value of Lionsgate’s library business. Executives argued that not only are there still plenty of buyers in AVOD (ad-supported video-on-demand) and FAST (free, ad-supported streaming television), but also that Lionsgate’s shelves have enough hits to thrive again. (But that’s also the job of a Lionsgate executive.)
Just don’t go looking for MGM money, Cahall cautioned; beyond the attraction of his “Bond,” “Rocky,” and “Creed” franchises, the M&A market “has probably cooled off” since then, he wrote.
Damn, Steve, it’s the Friday afternoon before Memorial Day weekend – can we end on a positive note?
Cahall still thinks “there will be a number of interested parties” in the Lionsgate study. After all, it’s “among the best setups in media,” she continued, making it “a likely target for consolidation by larger media players.” In other words: who wants to stick it to Amazon? Do you agree, Apple?
Additional reporting by Brian Welk.