Besides owning and operating a certain Manhattan landmark, The Madison Square Garden Company (NASDAQ: MSG ) is the company behind the New York Knicks and the New York Rangers, in addition to creating, distributing, and promoting a wide array of content and events at its venues. It's a $4.3 billion business owning "The World's Most Famous Arena" that, at first sight, doesn't appear to trade that cheaply. However, veteran value investor Mark Boyar believes the company has multiple catalysts that could unlock upwards of 50% in capital appreciation. Should you be taking a closer look at the cash flow machine that is Madison Square Garden?
A value story
The biannual Value Investing Congress brings together the world's leading (and up-and-coming) value investors to pitch stories to a room full of interested parties -- mainly other investors and media. One presenter at the ongoing New York event, Mark Boyar, has been in the game for 40 years and is the namesake behind one of the more respected value investing newsletters and funds -- Boyar Value Group.
In his presentation, amid much trepidation regarding a Chinese housing bubble, Boyar turned the tale to that of Madison Square Garden. The company fits the profile of an easy-to-understand, unfairly treated stock. In recent months, management has been troubled with New York City's desire (and possible command) to move MSG away from Penn Station. It would be dreadfully expensive, and not in the best interest of the company or its investors. But Boyar points out that if the city literally forced the arena to move (via eminent domain), it would be absurdly expensive and would spell a rather lackluster end to a legendary venue. The city currently gives MSG 10 years until their permit runs out.
With that concern mitigated, Madison Square Garden is an attractive business with $300 million in free cash flow per year. Boyar expects that number to continue growing, too. The story doesn't end there.
If the company were to initiate a share buyback and a dividend payout, Boyar believes Madison Square Garden investors would benefit from both the dividend income and substantial capital appreciation -- as much as $84 per share, or 50% above the current price.
Another way for the company to uncover some of its value would be for its longtime owners, the Dolan family, to take the company off the public markets all together. Value investors typically gauge market value versus intrinsic value. The latter can be considered what a private owner would pay for the business, absent of market hysteria. With the increasing cash flows and highly valuable properties, the Dolan family would be able to rid themselves of the woes of being a public company, while giving investors a quick and appealing premium to their shares.
Of course, even the best investors are correct only about 60% of the time, so don't take Boyar's word as gospel. Overall, MSG is a simple business with easily determinable future earnings prospects. These catalysts may end up giving investors a quicker return on their money. As for prospective investors, shares haven't bounced higher on the news, so there is still time to make it to the big show.
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