Chris Hohn is the Manager of the Children’s Investment Fund (TCI). It is an activist fund based in London. Hohn has had such success in the role that his fund received Eurohedge’s European Hedge Fund of the Year award in both 2004 and 2005. TCI maintains a relatively narrow portfolio – it had just 10 positions at the end of the fourth quarter – but it has a sizable portfolio. According to a 13F filed on February 14, it was valued at $1.94 billion at the end of December.
The majority of TCI’s portfolio is invested in News Corp (NWSA). The fund held 51.56 million shares in the company, a value of over $919.77 million at the end of the fourth quarter. This is actually a bit smaller than its position in the company at the end of the third quarter, when the fund held 53.84 million shares, but the value of its position in the company is greater. TCI’s position in News Corp was valued at just $833.48 million at the end of September. Mason Hawkins’ Southeastern Asset Management is also a fan of News Corp, and so are we.
Hohn initiated this sizable stake in News Corp during the third quarter; the share price of the stock from July through September ranged from $13.38 to $18.20 a share. When the market closed on February 17, News Corp was trading at $19.60 a share, with a mean one-year target estimate of $22.80 a share. The company also pays a dividend of 17 cents (0.90% yield) and is priced low at 11.67 times its forward earnings. Analysts estimate News Corp’s earnings will increase by an average of 18.95% per annum over the next five years, versus expectations of 16.40% for its industry. News Corp’s numbers are even stronger when looked at relative to its competitors. Take the New York Times (NYT) for instance. The company closed trading on February 17 at $7.29 a share on a one-year target estimate of $8.35, and it doesn’t pay a dividend. The New York Times is also priced higher relative to its future earnings, with a forward P/E of 12.15. The New York Times’ earnings over the next five years are estimated to fall by -1.00% per annum on average.
As of the end of the fourth quarter, TCI’s second largest position was in Walt Disney Co (DIS). The fund held just under 16.80 million shares in the company – a value of $629.88 million – at the end of December. TCI had owned more shares in DIS at the end of the third quarter – it had owned 19.11 million shares in the company at the end of September – but the value of its position in Disney at the end of December was greater than it was at the end of the third quarter, when the value of the position stood at $576.35 million. Jim Simons’ Renaissance Technologies likes Disney.
Disney closed trading on February 17 at $41.75 a share. It has a mean one-year target estimate of $45.14 and pays a 60 cents dividend (1.40% yield). The company is also priced low at 12.32 times its forward earnings. Disney’s earnings are expected to grow by 12.97% per annum over the next five years, versus expectations for its industry of 17.25%. Disney also has the point of distinction that it was one of the few companies that did not cut its dividends during the financial crisis, but rather has increased them every year since 2005. The company has done well across the board, driven largely by the success of its ESPN and Park divisions. It took a few hits from volatility in its Consumer Products, Studio and Interactive divisions, but its performance in other areas was enough to bolster its performance.
While the numbers may not sound bad, we like Disney competitor Time Warner (TWX) much better. Time Warner closed February 17 at $37.70 a share with a one-year target estimate of $42.37 and it pays a $1.04 dividend (2.80% yield). Time Warner has a lower earnings growth estimate at just 11.85% per annum over the next five years, but it is also priced lower relative to its future earnings, with a forward P/E of just 10.33, and pays a higher dividend, making it the better pick all around.
Chris Hohn’s TCI also held a significant position in Viacom (VIA-B) at the end of the fourth quarter. The fund held more than 4.28 shares in the company, valued at $194.48 million, at the end of December. This is a decrease from the end of the third quarter, when TCI reported owning 5.73 million shares in Viacom, valued at $222.03 million. Given that the share price for Viacom ranged from $35.13 to $46.27 and as of the end of trading on February 17 the stock was priced at $48.69, it is fair to say that Hohn may have reduced TCI’s position in the company prematurely. To its credit, Viacom’s earnings are forecasted to grow by 15.10% per annum on average, falling just shy of industry estimates of 16.40% and it is priced low at just 9.68 times its forward earnings. The company also pays a $1.00 dividend (2.10% yield). Viacom announced in early February that has signed a streaming content deal with Amazon, so the future is looking rather bright for this company. We think it is a great buy.