Ascent Media (ASCMA) recently gained 15% on a single day, probably due to buying by some event-driven hedge fund, so I thought this would be an opportune time to be review the company and examine whether any changes to the valuation is appropriate. The immediate cause for the rise appears to be the purchase of several brands in Ascent’s portfolio of businesses by Deluxe, a provider of post-production services and a competitor of Ascent Media. Deluxe is a private company, and a subsidiary of MacAndrews & Forbes, the holding company wholly owned by the famed corporate raider Ronald Perelman.
I last reviewed this stock in back in June of 2010. At that time, my major thesis was that the stock was trading at cash, and we were getting the $190M in fully-depreciated long term assets for free, and that $190M was likely to be a considerable underestimate of the value of those assets. The announced sale some of those assets to Deluxe for $68M would seem to validate my core thesis. Given the breadth of Ascent’s holdings, it is probable that those assets are booked at only a fraction of that price, so ASCMA will likely book another gain on sale of asset. Management’s strategy of selling assets to streamline operations seems to be proceeding as planned, and there seems to be improvements in the cost structure of the primary business as well. Despite declining revenue, cash drain seems to have slowed from $50M in 2009 to what I predict will be $15-20M in 2010. Of course, 6 months is a very short time to assess progress on ASCMA, but it is encouraging to see that the company seems to be headed in the correct direction. In addition, the continued recovery of the TV advertisement market and the general economic recovery in general also bodes well for this company. At this time, I stand by my $570M conservative valuation for this company, and the $40 minimum price target, and intend to continue to hold the stock.
Disclosure : I own shares of ASCMA
{ 2 comments… read them below or add one }
Thanks for your two articles on Ascent. I notice that the two businesses that are left are also probably going to be sold (“strategic alternatives..”). It looks to me like the businesses sold to Deluxe are the profitable, cream of the crop of the assets. I’m not sure how to value the content distribution and systems integration businesses (the remaining 2 business segments) – but it looks like they will not be worth $122 million on sale.
It seems like the holding company (trading at $444 million today, with $444 million in cash and corporate bonds at last balance sheet with the $68 m sale proceeds added in) may end up with something closer to $500 million in cash and no operating businesses. That would put a liquidation at under 35 dollars per share. Since the company will likely not be liquidated, the question becomes what type of value John Malone can create with this half billion dollars and a public listing.
Do you agree that the remaining businesses are less attractive than the sold businesses and we are therefore less likely to realize $190 million total proceeds from the sale of all operating businesses?
Ha! Well I guess I was off in yesterday’s comment!