Weekly Issue: The Media Landscape is Posed to Once Again Change
KEY POINTS FROM THIS ISSUE:
- We continue to have a Buy rating on the AMC Networks (AMCX) September 2018 $65 calls (AMCX180921C00065000) that closed last night at 5.30. We are boosting our protective stop loss to 4.00 from 1.25, and we would caution subscribers to not commit fresh capital past the 5.75 level.
- We are issuing a Buy on the Discovery (DISCA) October 2018 30.00 calls (DISCA181019C00030000) that closed last night at 1.65 and adding them to the Tematica Options+ Select List with a stop loss set at 1.00.
- We are scaling into our MoneyOnMobile (MOMT) position at current levels, which will serve to meaningfully improve our cost basis for this position.
As we all know by now, Tematica Investing Select List resident Walt Disney (DIS) has upped its offer for 21stCentury Fox (FOXA), something that was widely expected following a counterbid by Comcast (CMSCA). While I suspect we haven’t heard the last from Comcast, this bidding war along with the recent clearing of the decks for the merger between AT&T (T) and Time Warner (TWX) means the media landscape is poised to once again change.
Last week, we added the AMC Networks (AMCX) September 2018 $65 calls (AMCX180921C00065000)to the Tematica Options+ Select List, and while the calls traded off their recent highs, they finished up last night +32.5% vs. our 4.00 buy-in price. I continue to see follow-on, or more correctly pile on, media acquisitions coming not only by the company that fails to win the bid for 21StCentury Fox, but others looking to shore up their positions as well. Keep in mind too, we have Facebook (FB), Amazon (AMZN), Apple (AAPL) and Google (GOOGL) as well as Hulu and others looking to expand their content offering. Another sign the media landscape as we know it is changing.
To me this warrants keeping our position in the AMC calls intact. That said, I am raising the protective stop loss on the position to 4.00 from 1.25, which means at a minimum we should have a break-even return on the trade.
- We continue to have a Buy rating on the AMC Networks (AMCX) September 2018 $65 calls (AMCX180921C00065000)that closed last night at 5.30. We are boosting our protective stop loss to 4.00 from 1.25, and we would caution subscribers to not commit fresh capital past the 5.75 level.
ADDING A SECOND MEDIA M&A PLAY
Given what I’ve discussed above, it’s logical to think other media-entertainment companies could be acquired as the fallout of those transactions occurs. Aside from AMC Networks, another potential takeout candidate is Discovery, Inc. (DISCA), which operates various television networks under the Discovery Channel, TLC, Food Network, Animal Planet, Investigation Discovery, Science Channel, Velocity, Discovery Family Channel, Destination America, American Heroes Channel, Discovery Life, The Oprah Winfrey Network, Eurosport, Discovery Kids, DMAX, and Discovery Home & Health brands, as well as other regional television networks. Aside from its domestic and international footprint, Discovery has a growing digital presenceas well as its own Discovery Studios business that helps fill all those distribution points.
I continue to think AMC Networks is a more viable, first choice over Discovery, but as we’ve discussed both last week and above when a M&A wave hits an industry, it tends to result in a scramble that results in a number of new linkages. It looks to me that Discovery could very well be one of them, especailly with the shares trading at multiples that are well below that of 21st Century Fox and CBS (CBS). For that reason, I’m adding the Discovery (DISCA) October 2018 60.00 calls (DISCA181019C00030000) that closed last night at 1.65 to the Tematica Options+ Select List, and setting a stop loss at 1.00.
- We are issuing a Buy on the Discovery (DISCA) October 2018 30.00 calls (DISCA181019C00030000)that closed last night at 1.65 and adding them to the Tematica Options+ Select List with a stop loss set at 1.00.
Adding to our MoneyOnMobile position
Several weeks back, I adjusted the prices for our MoneyOnMobile (MOMT) position to account for the 1:20 reverse split. Sadly, it clearly showed the position to be in the red, but there have been some favorable and recent developments that warrant scaling into the shares at current levels.
Aside from the largely cosmetic reverse stock split, the company has launched several new solutions, including a biometric-based ATM cash-out solution that leverages the Indian government’s Aadhaar Enabled Payment System national identity system. Aadhaar is a 12-digit unique identifier issued to all Indians. As part of this ID program, the consumer’s 10 fingerprints are linked to each individual’s number. One of the purposes of this ID is for people to link their bank accounts, mobile phones and other services to this unique identifier. Exiting February, roughly 1.2 billion people, almost 99% of the country, had been enrolled in Aadhaar.
MoneyOnMobile also launched Bharat Billpay, the Reserve Bank of India’s payment service, through its retailer program that spans more than 350,000 retail locations throughout India.
As with most small-cap stocks, there are a few knocks on MoneyOnMobile, including its lack of Wall Street coverage as well as its bottom-line losses. However, given the recent reverse stock split and the company’s unique position as a play on the underbanked Indian population, odds are it will be attracting attention from the investment community. Another helping hand in terms of Wall Street research coverage and institutional ownership will be if MoneyOnMobile “graduates” from being an OTC- listed stock to either the Nasdaq or the New York Stock Exchange. In tandemn with its current rights offering, the company is activley pursuing an uplisting with Nasdaq. As far as bottom-line losses, the company has targeted being operationally cash breakeven in India by the middle of 2018.
From my perch, the positives continue to outweigh the negatives for this company that is serving the, dare we say it, “yuuuge” under-banked population in India. As such, we’re dipping our toes deeper into the MoneyOnMobile pool, reducing our cost basis in the process.
- We are scaling into our MoneyOnMobile (MOMT) position at current levels, which will serve to meaningfully improve our cost basis for this position.
