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Citi Likes The Formula 1 Deal By Liberty Media, Upgrades To Buy

Revved By F1 Deal, Liberty Media Wins Buy Rating, $32 PT|Citi

Citi Equity Research upgraded Liberty Media Group LMCA 7.49% shares from Neutral to Buy on the addition of Formula One (F1). Analysts, Jason Bazinet and Michael Cohen, lifted the target price by $10 from $22 to $32.

'Transformative' Move

The comments come on the heels of the company agreeing to buy F1 in a cash and securities transaction that was worth about $4.4 billion on September 7.

The brokerage believes the move to buy F1, which has an enterprise value of $8.0 billion, would be "transformative" — meaning the equity would shift from NAV-based to an equity return story.

Lower Valuation

In a research note to clients, the analyst said, "A few years ago, press reports suggested an F1 IPO would value the firm at $12 billion EV. At $12 billion EV, we previously described Formula One as a ‘trophy asset.' But, Liberty acquired the asset for just ~$8 billion EV. We suspect lower valuation based on erosion in F1's financial performance due to more F1 revenues flowing to the racing teams (versus F1 equity holders). But, the lower price tag reflects these new economics."

However, the brokerage thinks there could be volatility in the team composition, pointing out that several teams would lose money. However, the analysts are not too concerned over that, saying, "[W]e don't find the volatility troubling because for over 66 years, new entrants have always been willing to enter the fray."

Liberty Media closed Monday trading at $24.03.

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Sep 2016CitigroupUpgradesNeutralBuy
Aug 2016CitigroupMaintainsNeutral
Jun 2016Deutsche BankDowngradesBuyHold

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