Many global media companies expect substantial part of their future growth to come from Latin America. Perhaps nowhere is this more the case than for DIRECTV. Portada talked to Matthew Harrigan, photo, an analyst who covers media stocks, including DIRECTV, for Wunderlich Securities in Denver, Colorado.
What is the role of DIRECTV Latin American assets in the company’s overall growth expectations and valuation?
Matthew Harrigan, Wunderlich Securities: “DIRECTV Latin America is the main growth engine for all of DIRECTV although we think that the street may be too cautious on the long term sustainability of the U.S. business given its continued video lead, and prospects down the road for new products such as UltraHD.”
What sources of research do you have to analyze DIRECTV in Latin America?
Matthew Harrigan: “ We certainly look at local sources where available, particularly Annatel for Brazilian satellite, as well as company reports from Latin telcos. There are some consultancies that provide good value added for Latin America, the U.S. market is so well covered that most information pertinent to analysis comes directly out of companies.
How do you value a Latin America media company versus a U.S. media company?
Matthew Harrigan: “The valuation of the Latin relative to U.S. assets with varying discount rates is a very interesting issue. Many U.S. companies such as P&G and MSFT, etc. have huge overseas operations and the market still applies a U.S. cost of equity. In the instance of DIRECTV Latin America we do use a higher cost of equity derived off the Bovespa, although the organic terminal growth rate is also higher than for the S&P 500. Of course, interest rates are much higher in Brazil and DIRECTV Latin America has access to very low cost (low single digits after tax) U.S. market bank and public debt.”
What data are you particularly looking at to determine DIRECTV’s Latam performance?
Matthew Harrigan: Penetration rates by ABCD class, advertising composition by product category, although not that pertinent to DIRECTV, . Programming costs paid to various services, more realistic local market assessment of 3G/4G and terrestrial data rates, etc.”