Madison Square Garden shares began trading on a when-issued basis Jan. 25, opening at $21.68 per share and giving at least one analyst cause for excitement.
MSG — which includes the famed New York City arena, its professional-sports franchises and regional cable networks, as well as Cablevision’s concert venues and national music network Fuse — is scheduled to spin off from Cablevision Systems as a separate publicly traded company on Feb. 9. In a research report last week, Sanford Bernstein cable and satellite analyst Craig Moffett said that MSG’s closing price its first day ($21.74) equates to about $5.44 per Cablevision share.
But what got Moffett excited wasn’t the implied price of MSG, but what that value could mean to Cablevision. A $5.44 price for MSG implies that Cablevision (consisting of its cable operations and Rainbow Media assets) would be valued at $21.14 per share (its $26.58 Jan. 25 close minus $5.44), for an implied multiple of 6.3 times 2010 estimated cash flow. That, Moffett wrote, is way too low. Moffett sees substantial upside to the stock — he set his 12-month price target on Cablevision at $23 per share — adding that the “stub now sports an otherworldly free-cash-flow yield of 16.8%.”
A high free-cash-flow yield, coupled with a modest valuation, “means value accretion to shareholders simply by paying down debt could be substantial, with attractive risk-reward characteristics,” said Moffett.
MSG stock closed when-issued at $20.45 on Jan. 27 (down 86 cents). The stock is expected to begin trading on a regular basis on Feb. 10.