Value Hunter @valuehunter018

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Shall we finish discussing the valuation of $QRTEA Qurate, QVC, Q*? Part 5: Reverse engineering for 8x+ Returns tldr: Using the same methodology from Part 3, I evaluate assumptions required to achieve a >8x stock price increase by YE'26. Summarizing Parts 1-3: I previously demonstrated quantitatively that Q* appears to have made substantial improvements that likely enable it to generate sufficient FCF to meet its upcoming debt maturities and de-lever its balance sheet by generating ~$0.4 billion per year of FCF or ~$1.2 billion over 3 years. This reduction in debt and associated interest expense is probably sufficient to create residual value for the common equity holder. The analysis assumed no growth beyond '24E and assumed all FCF will be used to repay maturing debt or reduce RCF borrowings. These assumptions and current market pricing of Q* securities are ~aligned with Q*'s current stock price. Summarizing Part 4: Investing is risky and the downside case is a Q* stock price of zero (100% loss). Leverage (debt) Impact: A balance sheet with >$7 billion of debt, a "legacy" business model, COVID sales hangover, devastating warehouse fire, consultant led "transformation" and a share price quoted in cents are more than enough to scare-off even the most seasoned value investor. But, before you scroll away, remember that leverage works both ways. Detractors emphasize declining sales (down single digits in the core business), frighten about debt refinancing risk (not required for years) and lecture about higher interest rates (already impacting). I've shown that Q* appears to have stabilized its FCF and have the ability to generate enough organic cash flow (FCF) to meet its debt maturities for several years (a RCF refinancing with existing bank lenders is required by '26E). While previously magnifying fears of bankruptcy, what if the leveraged capital structure now acts as a multiplier for creating equity value if results improve modestly? That sounds attractive, but let's check if it's feasible or fantasy. The following illustration shows a set of new assumptions that result in a $QRTEA share price in '26E that is ~8x today's price. Let's compare it to Part 3: Base Case where we found a $QRTEA share value of only $0.63. Required Assumptions: 1) EV multiple increases to 6.0x OIBDA from 5.1x (<1 turn). Impact: Adds >$1.2 billion of EV, or a sixth year of OIBDA earnings (on top of the 5.1 years equivalent currently included in the market valuations). Reference point: S&P500 $SPY trades at EV/EBITDA multiple of >15x, so 6x v keeps us in a distressed category. Justification: Less pessimism due to either growth in y/y Sales, lower debt (repaid with FCF), and/or continued growth in OIBDA and FCF. 2) Higher OIBDA (+$0.25 billion over 3 years) and higher FCF (+$0.2 billion over 3 years). Impact: Modeled OIBDA increases of: +$25 million in '24E to $1.26 billion, +$75 million (from $0) in '25E to $1.31 billion, +$125 million (from $0) in '26E to $1.36 billion. Possible? this would require +6% OIBDA growth in '25E and +10% in '26E versus our previous assumption of no growth. At constant OIBDA margins (~11%) modest sales growth would result in higher earnings. Part 3: Base Case assumed OIBDA would grow +$87 million in '24E vs '23. That might sound like a lot, but selling Zulily in May'23 adds nearly +$50 million in '24E vs '23 (by eliminating losses). Incremental cost savings (full year impact) and efficiencies may lower costs and any sales growth ('25E and beyond) may generate additional OIBDA. Management has also hinted at improved OIBDA from International operations in '25E and beyond (cost efficiencies). Impact: Higher OIBDA translates into FCF increases of: -$(13) million in '24E to $385 million, +$110 million (from $0) in '25E to $527 million, +$106 million (from $0) in '26E to $544 million. Possible? Could +$225 million of more OIBDA really create +$203 million more FCF? Almost. OIBDA will be taxed, reducing FCF conversion. But, I also adjusted Capex to account for higher spend in '24E (aligning to management guidance) and offset it with a lower spend in '25E (due to TV distribution renewal cadence) creating a uneven pattern of FCF. FCF is ~flat in '24E and then increases meaningfully in '25E and '26E after declining in '24E. FCF assumptions are driven by earnings growth and debt repayment, as I hold NWC constant. It is expected that any revenue growth will be profitable (increasing OIBDA) and that, after-tax, most OIBDA growth will result in more FCF, unless it is reinvested in the business (ideally in marketing/advertising, or other business enhancing expenses). Summary of New Assumptions: 1) Increase EV / OIBDA multiple to 6.0x from 5.1x 2) Add ~$225 million of OIBDA and $203 million of FCF over 3 years (more cost savings in '24E and +~4% revenue growth in '25E and '26E) 3) Add +$30 million capex expense in '24E (reduces FCF) and reduce capex by -$(80) in '25E (adds FCF). That's it. All other assumptions and values are unchanged, except mechanical calculations in the model (ie. higher tax due to higher OIBDA, and lower interest expense due FCF repaying debt). Result: 8x Upside Case: The net result is an illustrated share price of $5.43 at year-end '26E, or a present value of $4.28. Potentially $5+ dollars for a $0.66 share in <3 years? Not bad. Even though the illustration now shows positive common equity value in '24E and beyond, compared to negative values until '26E in the Part 3: Base Case, I do not believe the price would react so suddenly to re-rate or increase the EV / OIBDA multiple until Q* demonstrated not only continued growth in OIBDA and FCF, but first positive revenue growth, and then sustained revenue growth, which isn't on the agenda until 2025. Patience remains a necessity, even if Q* were to begin to track towards this better trajectory later this year. Possible? Impossible? It depends on your assumptions and Q*'s ability to deliver on those assumptions. Price to FCF vs. EV / OIBDA multiples: Some commenters have suggested that FCF multiples should be used to value Q*, once the company proves that it's capital structure is sustainable and FCF is available for shareholders rather than debt holders. I agree that at some stage this metric might be more indicative than EV / OIBDA, but not until Q* provides more proof of its sustainable, cash generating turnaround. I added a row that shows the P / FCF ratio. Using the illustrative assumption, the '26E P / FCF ratio would be 4.3x (6x EV / OIBDA). It was suggested that 5.0x would be the appropriate starting level of P / FCF (20% FCF yield). This results in a share price >$6, or nearly 10x the current price. As always, this is just an illustration. Remember to take into account the risk highlighted in Part 4: a potential share price of zero and a 100% loss. Conclusion: This was the last post in a 5 part series discussing $QRTEA. "I appreciate our limited audience. 2 years from now when we're [indiscernible] success. You will be the only person who have heard the story in-person. So welcome to the privilege view." -QVC CEO David Rawlinson II, 14 March 2023 If your interested in QVC, retweet, or (preferably) go to the QVC or HSN website and purchase a "Today's Special Value" or other products. Mistakes? Thoughts?

@hunterdelarm123 Existing decline seems quite concerning. What percentage of them are best customers?

Wow who is attacking $qrtea? Fuck you asshole!

@andrewcoye For ‘26E EV, did you use net debt? I calculated approximately 6.2B net debt including the preferred as of 1Q2024. Wouldn’t the equity value be more if you included the 1B cash on hand? Or are you assuming that cash on hand is 0?