ABS should be a buy if it sells Sky Cable stake for >16 Billion Pesos

The loss of the right to operate a broadcasting network for failure to secure a congressional franchise should not have been an issue for ABS-CBN Corporation (ABS). Broadcasting and linear tv are declining industries and the future is curated digital content distribution and monetization, think of Netflix, Youtube, and TikTok.

With its dominant and world class content creation capabilities together with the capital accumulated during the heyday of broadcasting dominance, ABS has been in the prime spot to pivot to the future. But for some reason or another, ABS stuck with broadcasting and linear tv. Worst of it all, ownership and top management, hinged ABS’ loans to the congressional franchise.

As of end of the first half of 2020, ABS, the parent company, has long-term loans of around 20 Billion Pesos but as of August 19, 2020 ABS said that they have paid 4 Billion Pesos of that debt leaving around 16 Billion Pesos outstanding. The terms of the loans require congressional franchise making ABS in default as it failed to secure a congressional franchise. The loans are like the swords of Damocles hanging over the head of ABS.

With the broadcasting network gone, ABS still maintains its other legacy asset the linear tv distributor/cable tv operator, Sky Cable. ABS owns a controlling interests of 59.4% in the Sky Cable companies. Sky Cable is a linear tv distributor or a cable tv operator acquired by ABS from ABS’ controlling stockholder, Lopez Holdings Corporation (LPZ) when LPZ was struggling with debts almost two decades ago.

Reportedly, PLDT (TEL) is eyeing Sky Cable. According to the PLDT controlled Philippine Star, the MVP Group (referring to the PLDT and its affiliate) is ready to make an aggressive offer to make sure that it bags the deal. If that is the case, the Lopezes should not be sentimental on it and should give ABS the support to sell that legacy asset. ABS should sell its interest in Sky Cable for no less than 16 Billion Pesos.

If that happens ABS will be able to fully settle its debt and free itself from the sword of Damocles. If this happens then ABS will only have to change ownership mix and management to take advantage of the changing trend in content consumption and distribution as it has already a superb content creation capabilities. ABS must admit an ownership group and install a management team that are adept with technology. By then, ABS should be buy. ABS by that time would be a business that is not required to secure a congressional franchise and without foreign ownership restriction.

Disclaimer and Disclosure: This is an independent analysis for discussion purposes with the aim of giving stock traders and investors an independent view point.  Accuretti Systems Inc. in the course of day to day trading may have own, or is considering buying or disposing, the shares of the companies mentioned in this commentary.

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