Betting on Renewed Growth
According to Credit Suisse, consensus earnings downgrades for China Unicom (NYSE:CHU) have been turning into upgrades over the past two months. The reason is simple: Top-line growth seems to be much healthier than many had expected. For the second quarter, the company has delivered 20.5% year-over-year cell phone revenue growth and more than 3% revenue growth in its fixed-line business. Besides, lower churn figures should help EBITDA margins going forward.
On top of what has been stated above, valuation also seems extremely compelling. As I always quote, “Price is what you pay; value is what you get.” Trading at 3.6 times 2014 EV/EBITDA and a 13.3 times P/E while the company is expected to pay a 3% cash dividend yield as for next year, I think that, at the current price level, you are getting more than what you are paying for. The stock is being held by GMO, Jeremy Grantham's firm.
Sum of the Parts Valuation
Murdoch's News Corporation (NASDAQ:NWSA), which is held by investors such as Michael Price and John Burbank, looks cheap when you perform a sum of the parts valuation estimate. As a matter of fact, the company trades at 80% its book value when it owns a $2.5 billion net cash position and when it is poised to generate an always growing 7% free cash flow yield in 2014.
On one hand, the company's News & Info division is among the best positioned publishing businesses in the world. Dow Jones and Wall Street Journal are both strong international brands that are growing in audience and sales. On the other hand, the company owns other businesses that are performing extremely well such as NAM (America's dominant provider of inserts and in-store marketing) or its multiple assets in pay TV, which are generating increasing amounts of cash. Overall, I believe News Corporation offers good value at 2014 7 times EV/EBITDA. The company should re-start paying a dividend as soon as next year (I would expect a 2.7% cash dividend yield for 2014) and has the necessary firepower to acquire further valuable media assets.
Both companies named above have resisted heavy headwinds during a good part of 2012 and 2013. I think they should now re-start delivering good results, coupling those results with high top-line growth. While China Unicom is a growth play at an extremely compelling price, News Corporation is a value play. I believe the market is not assigning a fair price to the various media assets the Australian conglomerate fully owns. I would keep both companies into my equity watch list. It's always great to find value where other investors don’t.