Lionsgate-Starz will generate ‘significant cash flow’: analyst

Starz Power
"Power" is one of the most popular programs on Starz. Image: Starz

Lionsgate and Starz have finally closed their merger and recently held an analyst day to open up about strategy going forward.

At least one analyst, John Janedis from Jefferies, came away under the impression that the freshly combined companies will greatly benefit.

“The day highlighted strategies/opportunities for the Starz, Lionsgate Film and Lionsgate TV assets, which combined benefit from diversification, scale, stability and a mitigated risk strategy,” wrote Janedis in a research note. “Together, we expect the company to generate significant cash flow, and reiterate our Buy rating.”

Janedis pointed specifically to the companies’ now more diversified earnings stream. He noted that Starz Networks will account for more than 60% of Lionsgate's combined gross contribution, and that the premium channel’s “stable cash flow helping to offset the more volatile film/TV production businesses.”

On a combined basis, Janedis estimated that the company will generate $200 million of operating and financial synergies to be recognized immediately.

Those estimates were likely influenced by comments from John Malone, a shareholder in Starz and Lionsgate, who was on hand for the analyst day.

"Lionsgate/Starz merger provides more predictable rev stream, allows combined co to be more levered than a pure movie biz,” said Malone, according to BTIG analyst Rich Greenfield.

Starz attributed its success in the premium network market to its "targeted" programming approach, which focuses on serving African-American and female demographics, according to Janedis. Looking ahead to 2017, Starz said it will have eight original series in total and that its direct-to-consumer product Starz OTT is still close to 1 million subscribers.

RELATED: Starz OTT now has nearly 1 million subscribers thanks to Amazon

While Starz will drive a good portion of the combined company’s TV business, the Lionsgate TV division is holding its own as well. Lionsgate now produces nearly 90 shows airing across 40 networks, according to Janedis. For the past decade, Lionsgate TV has experienced 20% compound annual growth rates for revenue.

“The segment has secular tailwinds at its back with demand for content increasing with the growth of new OTT & DTC platforms,” wrote Janedis. “Currently LGF does not produce any show on Starz, but this is an opportunity we expect the company will capitalize on in the near future.”

Lionsgate did not update its prior guidance for the standalone company, nor did it provide guidance for the new combined company. But, according to Janedis, Lionsgate expects to report in three segments now: Networks, Film and TV.

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