About: News Corp is an American multinational mass media company, formed as a spin-off of the former News Corporation (as founded by Rupert Murdoch in 1979) focusing on newspapers and publishing. It is one of two companies which succeeded the former News Corporation, alongside 21st Century Fox —which consists of the old News Corporation's broadcasting and media properties, such as Fox Entertainment Group. Today NWS consists of digital real-estate assets (primarily 62% of REA Group and all of its US equivalent Move), which are considered to have significant growth potential, and of former News Corporation's television, newspaper and book publishing assets which are considered to be in decline. These include the Wall Street Journal, the New York Post, The Australian, The Daily Telegraph, The Herald Sun, GQ Australia, Vogue Australia, news.com.au, Sky News, all of Fox Sports Australia and a stake in Foxtel.

Why it’s in the portfolio: NWS provides the portfolio with exposure to both traditional and new-age media and publishing businesses, both in Australia and overseas (mainly US and UK). NWS is one of the few companies in the portfolio that derives a significant part of its earnings from the US, which would provide a boost to earnings if the Australian Dollar were to depreciate against the US Dollar (and vice versa). In our view the market may be discounting too aggressively NWS’s traditional media assets (both TV/cable and print) which are still cash-generative businesses, even in decline. The uptick in quality newspaper subscriptions since Trump’s election is a case in point.

Fundamentals: NWS currently trades on a price-to-earnings ratio of around 33x forward earnings. This unusually high number reflects the fact that NWS’s earnings are currently negative, and that analysts believe they’ll improve to a small positive number next year and grow further from there. Thus, the price (that takes into account future growth) divided by quasi-nil 1-year forward earnings, yields a very high ratio. NWS’ price-to-book ratio is 0.8x NWS currently offers around a 1.3% gross dividend yield, and a dividend payout ratio of around 49%. At 2.6%, NWS’ level of debt relative to assets is negligible.

What could go wrong? Subscription and advertising revenues for traditional newspapers, as well as book sales, are said to be in secular decline. Increasingly, Foxtel and Fox Sports Australia are being included in this basket of assets with declining revenue prospects. While it is likely that the market has already priced that in, a fair amount of growth from currently negative earnings is also predicted. Therefore, NWS may have to increasingly rely on its ability to successfully grow its newer-age businesses like REA and Move.