Description

I will keep this much shorter than I normally do given that it is a simple thesis and I can answer questions in the thread.

Graham Holdings (GHC) is the holding company run by the Graham family that was formerly The Washington Post Company (WPO).  In 2015, the company spun-off Cable One (CABO), their cable assets, Don Graham retired as the CEO, and his son-in-law Tim O'Shaughnessy, took over as CEO.  O'Shaughnessy is married to Don Graham's daughter who runs Social Code, an internet marketing operating company owned by GHC.

They have a collection of legacy businesses that earn money, and they have used the cash flow to buy other businesses and repurchase shares.  The Graham family owns a ton of stock and controls the company through super-voting shares.  I think management here is average.  I dont' love the decisions they have made but I also don't think they are actively stupid.  The CEO has long-term options that strike in the $700's.  They ultimately care about shareholder value given their big ownership stake.

The stock traded off sharply this year, from $700 at year-start to $540/share right before the Coronovirus started impacting markets.  Recently, it has been in freefall and is now $337.  This seems like a very low price for the assets you are getting.  I think someone is blowing out of this without much sensitivity to price.

Company:

1) Broadcasting - the company owns 7 broadcasting stations, in Houston, Detroit, Orlando, San Antonio, 2 in Jacksonville, and Roanoke.  They have averaged $180m EBIT over the past 6 years, produce a ton of cash, have no leverage, and have high margins.

2) Education - the company owns a hodgepodge of for-profit education assets.  Adj EBIT was $80m last year on $1.4 billion revenue.  They break it out into 4 segments - Higher Education (run by Purdue, GHC basically gets a royalty), International, Test Prep, and Professional U.S..  I think the International and Professional are the best businesses in here.

3) Industrial - GHC has acquired a series of niche industrial businesses that earned $54m Adj EBITA and $46m Adj EBITA in 2019.  They sell kiln-dried lumber, screwjacks, various electrical products, and tools to manage combustion at electrical utilities.

4) Healhcare - GHC provides home health care, hospice, and palliative care to 50k patients through various centers, earned $15m Adj EBITA in 2019

5) Other - they bought a high-end restaurant group last year in DC (Clyde's), two local auto dealerships, Slate online magazine, Foreign Policy magazine, and a few other money-losing startups, include Social Code, an online marketing firm.

A month ago, I would have valued these businesses as follows - Broadcasting $1.6b (9x EBIT), Education $800m (10x EBIT), Industrial $500m (10x EBITA), Healthcare $150m (10x EBIT), other $200m (roughly what the spent), Corporate -$500m (10x EBIT).  That would get to $2,750m.  That was based on about $275m normalized EBIT and was much lower than comps at the time.  There is then $138m net cash (assuming 30% decline on marketable securities).  There is a pension that is probably still overfunded by a few hundred million assuming even 35% stock market declines.

The EV is currently $1,656m.  This company will produce cash in almost any scenario, and they can shut down the money losing startup stuff if it makes sense to do so.  I have no idea what the next year or two will bring, but they should emerge mostly intact.  The stock seems cheap here on both an absolute and a relative basis.

Catalyst

No catalyst, just a cheap stock.