We strongly believe Comcast Corp could be a great investment if we are able to acquire it at an appropriate price that will allow us to see reasonable returns in the future. To come up with a fair offer, we evaluated the company’s business operations, financial performance (past and projected), the industry it operates in, and any risks that may derail the company’s financial performance.
We chose to value the company using the Terminal Discounted Cash Flow method and The Exit Multiple Approach. Using our base case scenario the Terminal approach yielded a fair value of $67.17 per share, and the Multiple of EBITA produced a value of $60.31 per share. Therefore, we think it would be fair to begin our offer using the multiple value of the firm, and our maximum offer would use the terminal value.
Description of the Company’s Market
Comcast Corp. is the largest U.S. cable multiple system operator (MSO). In addition to its core cable business, Comcast provides broadcast and filmed entertainment programming and offers video streaming, high speed internet, and communication services. Reasons to Buy
Large Network and Customer base
Comcast’s increasing customer base and large network makes it an attractive investment for us to consider acquiring it. The company has the highest subscriptions in the industry with a total of 53 million subscribers to their voice, internet, and video services. Comcast also has strong penetration rates in the areas they serve. The company has been able to monopolize areas it serves because no other company can match Comcast's ability to offer multiple services over one connection within the territories it serves. In addition to greater customer loyalty, delivering multiple services leads to higher cash flow per subscriber. Comcast's network should give it a platform to meet customer demands well into the future at modest incremental cost. Strong Leadership
Another attractive quality about the company is how well it has been managed from an operational and financial perspective for the last decade. Comcast’s management has done a solid job at employing different strategic initiatives through acquisitions, and different investments in product development in order to keep their products as well as their service offerings current and competitive. New acquisitions like NBCU have diversified streams of revenue. Through new negotiated license agreements they have managed to keep their programming costs as a percentage of sales lower than competitors. The company has also been realizing larger earning margins than its peers in the industry. Even more impressive, is that that company has been able to achieve all this success without employing high debt levels compared to high industry levels. Comcast's core cable business has performed very well over the past few years producing solid customer and revenue growth that has driven strong cash flow and we believe it can continue producing the same results into the future with our combined resources. Threats
As the industry in which Comcast’s operates is changing significantly, the company’s growth potential runs a high risk to be limited in the future if one or more of the following occur. Firstly, the markets that Comcast serves are extremely mature and face threats from new technologies. Secondly, Internet-based video distribution could cause customers to shift away from cable, or pressure cable prices. Thirdly, Comcast success is attributable to its ability to monopolize areas it serves; the threat of new entrants like Google who have strong FCF balance and resources to compete directly, can further pressure pricing and reduce market share. Fourthly, outdated cable infrastructure can lead to loss of market share to competitors who have superior infrastructure that has more advanced network system. Lastly, a bad economy could lead to an increase in subscription cancellations due to less disposable income available, and can also put pressure...
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