AMC Networks, set to be spun off from Cablevision Systems on June, is already seen as a candidate to be taken over, according to one analyst.
Richard Greenfield of BTIG initiated coverage of AMC, which is comprised of the cable networks run by Cablevision’s Rainbow Media division, including AMC, WE tv, IFC and Sundance Channel, estimating that it could be worth $48 a share in a year, compared to its current price of $35 a share (when issued).
But Greenfield says that AMC is likely to be acquired by 2013. By that time, both ratings and affiliate fee revenue should be higher, creating a good opportunity for the company to monetize itself. “Given the relatively small size of AMC (market cap $2.5 billion and an enterprise value of $4.8 billion), we see a long list of potential buyers, including strategics such as NBCU, CBS and Time Warner, in addition to financial buyers,” he says.
“We believe a takeover premium is likely to creep into AMC over the next 12 months. While nobody expects the Dolans to sell MSG or core Cablevision anytime in the near-future, we do not sense they have the same views about holding onto AMC Networks, if the right bid were made in 2012/2013.”
Until then, Greenfield sees AMC as attractive because its “water cooler” programs, including Mad Men, Breaking Bad and The Walking Dead, should lead to higher ad sales. Affiliate fees should increase as most of its distribution deals begin to expire in 2013.
He adds that the company will stop paying management fees to Cablevision, saving $6 million a quarter, and that a resolution to lawsuits regarding its old Voom hi-definition channels will remove that burden to AMC’s earnings after 2012.
“We believe AMC’s current valuation is compelling,” says Greenfield, who gives the stock a Buy rating.