Arvind Mallik of KMF Investments presented his in-depth investment thesis on ViacomCBS (Nasdaq: VIAC) at Wide-Moat Investing Summit 2020.

Thesis summary:

ViacomCBS is a “new” company resulting from the December 2019 an all-stock merger of Viacom and CBS. The company is controlled by the family of billionaire media mogul Sumner Redstone and has a dual-share structure: VIAC and VIACA. The stock has sold off post-merger and Covid-19 pandemic, trading at $25 per share recently, or an equity market cap of ~$15 billion. At a P/E multiple of only 5x, ViacomCBS is one of the most undervalued media giants. Merger savings of ~$750 million could add more than $1 to EPS.

The post-merger ViacomCBS has improved its scale and customer captivity moats in both the streaming and traditional businesses. The company plans to divest non-core assets (real estate, book publisher Simon and Schuster) where there is no significant moat or synergy. ViacomCBS’s vast content library surpasses even those of powerhouses like Netflix, Amazon, and Disney, allowing opportunistic “arms dealer” monetization. The global reach of the company provides a platform for growth and monetization of content.

While the company’s debt is significant, ViacomCBS maintains a manageable leverage ratio and healthy interest coverage. Even during Covid-19, the company successfully refinanced its near-term maturities and retained access to a $3.5 billion revolver, which remains undrawn.

Chairwoman Shari Redstone stated at the May 2020 annual meeting, “We totally believe the stock is dramatically undervalued. The market is looking for us to prove we can execute our strategy.” Redstone purchased $2 million of VIAC non-voting stock in February and March. Potential success in streaming could change investor perceptions of the company’s value.

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About the instructor:

Arvind Mallik is a Managing Partner of KMF Investments, a pure Pay-for-Performance Private Investment Partnership based in Denton, Texas. KMF seeks long-term capital appreciation by investing in companies whose intrinsic value is significantly higher than the market price. Over its ten years of operations, KMF has found opportunities in world dominating franchises, hard assets below replacement costs, businesses at large discounts to liquidation value, and firms with beneficial exposure to rising interest rates. Prior to founding KMF Investments, Mr. Mallik was a Senior Manager in the Strategy practice of Accenture. At Accenture, he helped global companies formulate and execute strategies to enter new markets, develop innovative new services and solutions, and reduce their operating costs to improve shareholder returns. Mr. Mallik obtained a BS in Chemical Engineering and BS in Bioengineering from UC Berkeley, and an MS in Chemical Engineering from MIT. He graduated with highest honors from both institutions.

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