Bear Stearns analyst Vic Miller has been studying the Belo split into two companies. At the current share price, he figures the newspaper company stock (A.H. Belo, which will trade as AHC) is basically being thrown in for free if you buy Belo stock (BLC) for the TV company.
“At Friday’s 15.04 price, we believe the implied multiple for newspaper for AHC, if the TV assets traded at 9.0 times 2008 EBITDA, approximates minus 4.5 times EBITDA. BSC analyst Alexia Quadrani has an Underweight rating on newspapers, but we think AHC has a strong newspaper franchise. The price also implies a 6.8x multiple for BLC’s TV station group, which is too low given the quality of BLC’s TV station group,” Miller wrote, approaching the valuation from both directions.
“If BLC’s newspapers and TV stations trade in-line with comps, at 6.5x and 9.0x 2008 EBITDA, respectively, the stock(s) should trade more closely to 22.00 (combined),” Miller concludes.