Warner Bros. Discovery

Warner Bros. Discovery is a media business in the US with a strained balance sheet due to historic M&A and pressure on some of its legacy business segments, most notably linear TV. The business, however, is undergoing an active transition as they rapidly grow their streaming business whilst curtailing losses in this segment and working on a turnaround of their TV and movie production business. They have also recently announced the restructuring of their business, which should allow for value creation and the sale or spinoff of their legacy assets, which was further supported by a notable distribution deal with Comcast, supporting the linear TV business. We believe management is driving the business in the correct direction with an acute focus on managing the debt load, which is supported by robust FCF generation whilst positioning the business favourably in an evolving media landscape. We thus believe a lot of equity value is still to be created as debt is paid down and the enterprise value transitions from debt to equity. The business currently trades on ~5x 2025 FCF which we deem very compelling.

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