Intrinsic value of MSG Networks Cl A - MSGN

Previous Close

$20.55

  Intrinsic Value

$3.88

stock screener

  Rating & Target

str. sell

-81%

  Value-price divergence*

-65%

Previous close

$20.55

 
Intrinsic value

$3.88

 
Up/down potential

-81%

 
Rating

str. sell

 
Value-price divergence*

-65%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of MSGN stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 1.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  4.28
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  658
  671
  687
  704
  724
  746
  770
  796
  825
  855
  888
  923
  961
  1,001
  1,043
  1,088
  1,136
  1,186
  1,240
  1,296
  1,355
  1,418
  1,485
  1,554
  1,628
  1,705
  1,787
  1,873
  1,963
  2,058
  2,158
Variable operating expenses, $m
 
  217
  221
  225
  230
  236
  242
  249
  256
  264
  273
  239
  249
  260
  271
  282
  295
  308
  322
  336
  352
  368
  385
  403
  422
  442
  464
  486
  509
  534
  560
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  385
  217
  221
  225
  230
  236
  242
  249
  256
  264
  273
  239
  249
  260
  271
  282
  295
  308
  322
  336
  352
  368
  385
  403
  422
  442
  464
  486
  509
  534
  560
Operating income, $m
  274
  455
  466
  479
  494
  510
  528
  547
  568
  591
  615
  684
  711
  741
  772
  806
  841
  878
  918
  960
  1,004
  1,050
  1,099
  1,151
  1,206
  1,263
  1,323
  1,387
  1,454
  1,524
  1,599
EBITDA, $m
  289
  499
  511
  524
  539
  555
  573
  592
  613
  636
  661
  687
  715
  744
  776
  809
  845
  882
  922
  964
  1,008
  1,055
  1,104
  1,156
  1,211
  1,269
  1,329
  1,393
  1,460
  1,531
  1,605
Interest expense (income), $m
  28
  56
  11
  12
  12
  13
  14
  15
  16
  18
  19
  20
  22
  23
  25
  27
  29
  31
  33
  35
  37
  40
  42
  45
  48
  51
  55
  58
  62
  65
  69
Earnings before tax, $m
  244
  398
  455
  467
  481
  497
  514
  532
  552
  573
  596
  664
  690
  718
  748
  779
  812
  848
  885
  925
  967
  1,011
  1,057
  1,106
  1,157
  1,212
  1,269
  1,329
  1,392
  1,459
  1,529
Tax expense, $m
  81
  108
  123
  126
  130
  134
  139
  144
  149
  155
  161
  179
  186
  194
  202
  210
  219
  229
  239
  250
  261
  273
  285
  299
  313
  327
  343
  359
  376
  394
  413
Net income, $m
  8
  291
  332
  341
  351
  363
  375
  388
  403
  419
  435
  484
  504
  524
  546
  569
  593
  619
  646
  675
  706
  738
  772
  807
  845
  885
  926
  970
  1,017
  1,065
  1,116

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  120
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  807
  824
  842
  864
  888
  915
  945
  977
  1,012
  1,049
  1,090
  1,133
  1,179
  1,228
  1,280
  1,335
  1,393
  1,455
  1,521
  1,590
  1,663
  1,740
  1,822
  1,907
  1,997
  2,093
  2,193
  2,298
  2,409
  2,526
  2,648
Adjusted assets (=assets-cash), $m
  687
  824
  842
  864
  888
  915
  945
  977
  1,012
  1,049
  1,090
  1,133
  1,179
  1,228
  1,280
  1,335
  1,393
  1,455
  1,521
  1,590
  1,663
  1,740
  1,822
  1,907
  1,997
  2,093
  2,193
  2,298
  2,409
  2,526
  2,648
Revenue / Adjusted assets
  0.958
  0.814
  0.816
  0.815
  0.815
  0.815
  0.815
  0.815
  0.815
  0.815
  0.815
  0.815
  0.815
  0.815
  0.815
  0.815
  0.816
  0.815
  0.815
  0.815
  0.815
  0.815
  0.815
  0.815
  0.815
  0.815
  0.815
  0.815
  0.815
  0.815
  0.815
Average production assets, $m
  63
  64
  66
  68
  70
  72
  74
  76
  79
  82
  85
  89
  92
  96
  100
  104
  109
  114
  119
  124
  130
  136
  143
  149
  156
  164
  172
  180
  188
  198
  207
Working capital, $m
  169
  116
  119
  122
  125
  129
  133
  138
  143
  148
  154
  160
  166
  173
  180
  188
  196
  205
  214
  224
  234
  245
  257
  269
  282
  295
  309
  324
  340
  356
  373
Total debt, $m
  1,478
  292
  309
  329
  351
  375
  401
  430
  462
  495
  532
  571
  612
  656
  703
  752
  805
  861
  920
  982
  1,048
  1,117
  1,190
  1,267
  1,349
  1,434
  1,524
  1,619
  1,719
  1,824
  1,935
Total liabilities, $m
  1,927
  741
  758
  778
  800
  824
  850
  879
  911
  944
  981
  1,020
  1,061
  1,105
  1,152
  1,201
  1,254
  1,310
  1,369
  1,431
  1,497
  1,566
  1,639
  1,716
  1,798
  1,883
  1,973
  2,068
  2,168
  2,273
  2,384
Total equity, $m
  -1,120
  82
  84
  86
  89
  92
  94
  98
  101
  105
  109
  113
  118
  123
  128
  133
  139
  146
  152
  159
  166
  174
  182
  191
  200
  209
  219
  230
  241
  253
  265
Total liabilities and equity, $m
  807
  823
  842
  864
  889
  916
  944
  977
  1,012
  1,049
  1,090
  1,133
  1,179
  1,228
  1,280
  1,334
  1,393
  1,456
  1,521
  1,590
  1,663
  1,740
  1,821
  1,907
  1,998
  2,092
  2,192
  2,298
  2,409
  2,526
  2,649
Debt-to-equity ratio
  -1.320
  3.550
  3.670
  3.800
  3.950
  4.090
  4.250
  4.400
  4.560
  4.720
  4.880
  5.040
  5.190
  5.340
  5.490
  5.640
  5.780
  5.910
  6.050
  6.180
  6.300
  6.420
  6.540
  6.650
  6.750
  6.850
  6.950
  7.050
  7.140
  7.220
  7.300
Adjusted equity ratio
  -1.805
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  8
  291
  332
  341
  351
  363
  375
  388
  403
  419
  435
  484
  504
  524
  546
  569
  593
  619
  646
  675
  706
  738
  772
  807
  845
  885
  926
  970
  1,017
  1,065
  1,116
Depreciation, amort., depletion, $m
  15
  45
  45
  45
  45
  45
  45
  45
  45
  45
  45
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  7
  7
Funds from operations, $m
  82
  335
  377
  386
  396
  407
  420
  433
  448
  464
  481
  487
  507
  527
  549
  572
  597
  623
  650
  679
  710
  742
  776
  812
  850
  890
  932
  976
  1,023
  1,072
  1,123
Change in working capital, $m
  14
  2
  3
  3
  3
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
  17
Cash from operations, $m
  68
  333
  374
  383
  393
  404
  416
  429
  443
  459
  475
  481
  500
  520
  542
  564
  588
  614
  641
  669
  700
  731
  765
  800
  837
  877
  918
  961
  1,007
  1,055
  1,106
Maintenance CAPEX, $m
  0
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
New CAPEX, $m
  -3
  -1
  -1
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
Cash from investing activities, $m
  -74
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -12
  -13
  -14
  -15
  -15
  -17
Free cash flow, $m
  -6
  330
  370
  379
  389
  399
  411
  424
  438
  453
  469
  475
  494
  513
  534
  557
  580
  606
  632
  660
  690
  721
  754
  789
  825
  864
  905
  947
  992
  1,040
  1,090
Issuance/(repayment) of debt, $m
  1,489
  -1,186
  17
  19
  22
  24
  27
  29
  31
  34
  36
  39
  41
  44
  47
  50
  53
  56
  59
  62
  66
  69
  73
  77
  81
  86
  90
  95
  100
  105
  110
Issuance/(repurchase) of shares, $m
  -99
  912
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -94
  -274
  17
  19
  22
  24
  27
  29
  31
  34
  36
  39
  41
  44
  47
  50
  53
  56
  59
  62
  66
  69
  73
  77
  81
  86
  90
  95
  100
  105
  110
Total cash flow (excl. dividends), $m
  -99
  55
  388
  398
  410
  423
  438
  453
  469
  487
  505
  514
  535
  557
  581
  606
  633
  661
  691
  722
  755
  790
  827
  866
  907
  950
  995
  1,042
  1,092
  1,145
  1,200
Retained Cash Flow (-), $m
  2,844
  -1,202
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  -1,147
  386
  396
  408
  421
  435
  450
  466
  483
  501
  510
  530
  553
  576
  601
  627
  655
  684
  715
  748
  783
  819
  857
  898
  940
  985
  1,032
  1,081
  1,133
  1,188
Discount rate, %
 
  15.50
  16.28
  17.09
  17.94
  18.84
  19.78
  20.77
  21.81
  22.90
  24.05
  25.25
  26.51
  27.84
  29.23
  30.69
  32.22
  33.83
  35.53
  37.30
  39.17
  41.13
  43.18
  45.34
  47.61
  49.99
  52.49
  55.11
  57.87
  60.76
  63.80
PV of cash for distribution, $m
 
  -993
  285
  247
  211
  178
  147
  120
  96
  75
  58
  43
  32
  23
  16
  11
  7
  5
  3
  2
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

MSG Networks Inc. engages in the sports production, and content development and distribution businesses in the United States. The company owns and operates MSG Network and MSG+, which are regional sports and entertainment networks. It also operates MSG GO that provides live streaming and video on demand, as well as a Website and social media platforms for its brands. The company was formerly known as The Madison Square Garden Company and changed its name to MSG Networks Inc. in October 2015. The company was founded in 1874 and is based in New York, New York.

FINANCIAL RATIOS  of  MSG Networks Cl A (MSGN)

Valuation Ratios
P/E Ratio 192.5
Price to Sales 2.3
Price to Book -1.4
Price to Tangible Book
Price to Cash Flow 22.6
Price to Free Cash Flow 23.7
Growth Rates
Sales Growth Rate 4.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -57.1%
Cap. Spend. - 3 Yr. Gr. Rate -58%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity -126.2%
Total Debt to Equity -132%
Interest Coverage 10
Management Effectiveness
Return On Assets 1.4%
Ret/ On Assets - 3 Yr. Avg. 4.7%
Return On Total Capital 0.8%
Ret/ On T. Cap. - 3 Yr. Avg. 7.8%
Return On Equity 2.6%
Return On Equity - 3 Yr. Avg. 8.5%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 59.3%
Gross Margin - 3 Yr. Avg. 62.8%
EBITDA Margin 43.6%
EBITDA Margin - 3 Yr. Avg. 49.6%
Operating Margin 41.5%
Oper. Margin - 3 Yr. Avg. 47.3%
Pre-Tax Margin 37.1%
Pre-Tax Margin - 3 Yr. Avg. 45.5%
Net Profit Margin 1.2%
Net Profit Margin - 3 Yr. Avg. 19.2%
Effective Tax Rate 33.2%
Eff/ Tax Rate - 3 Yr. Avg. 37.5%
Payout Ratio 0%

MSGN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MSGN stock intrinsic value calculation we used $658 million for the last fiscal year's total revenue generated by MSG Networks Cl A. The default revenue input number comes from 2016 income statement of MSG Networks Cl A. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our MSGN stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 15.5%, whose default value for MSGN is calculated based on our internal credit rating of MSG Networks Cl A, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of MSG Networks Cl A.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of MSGN stock the variable cost ratio is equal to 32.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for MSGN stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.8% for MSG Networks Cl A.

Corporate tax rate of 27% is the nominal tax rate for MSG Networks Cl A. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the MSGN stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for MSGN are equal to 9.6%.

Life of production assets of 32.5 years is the average useful life of capital assets used in MSG Networks Cl A operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for MSGN is equal to 17.3%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $-1120 million for MSG Networks Cl A - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 73.059 million for MSG Networks Cl A is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of MSG Networks Cl A at the current share price and the inputted number of shares is $1.5 billion.

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Stock chart of MSGN Financial statements of MSGN
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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