The recent set of Q2 results from Discovery Communications did not meet with everyone’s total approval (their shares fell 6 per cent on August 7th with profits falling 42 per cent to $216 million) but equity analysts at Deutsche Bank are not just keeping the faith, but reiterating its ‘Buy’ rating, and upping Discovery’s target share price from $34 to $37.
The bank says there are a few positive elements in its analysis. First, it specifically expects the UKTV cluster of channels to be “rationalised” with ongoing discussions between Discovery and the BBC. “If Discovery were to sell its stake to the BBC and a potential new partner, according to press reports, Discovery could receive about £500 million ($660 million), or $1.00 per share before taxes.”
The report also expects Discovery to deconsolidate its Eurosport Player in Germany with its new relationship with ProSiebenSat-1 coming together.
Indeed, the bank says Discovery has a special appeal to investors with a longer-term vision, and stresses that the bank’s valuation is “conservative”, and if accurate that “Discovery should generate more than $13 billion of Leveraged Free Cash-flow over the next 5 years, which is significant relative to the current market cap of $17 billion.”