Qurate Retail ($QRTEA) — 3Q21 Update (11/11/21)

Qurate Retail ($QRTEA)…

Price: $10.30 Market Cap: $4.1bn Valuation: 5.4x EBITDA

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It was a strange reaction the past few days as the stock went from $11 to $8 and back to $10+ today...

This quarter was just plain bad. The business was down significantly from 2020 which is acceptable given the huge shift to online buying that took place last year. More concerning to me was that results were way down from 2019 levels… There was plenty of conversation around supply chain, price increases, labor cost increases, inventory stocking challenges, etc. A lot of these things don’t seem immediately resolvable.

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There were some positives:

  • A special dividend of $1.25/share was announced
  • Repurchases totaled $120m / 10.9m shares bringing the share count down to 396m
  • Indicated they’d be repurchasing approx 10% of shares outstanding measured from beginning of the year — this would indicate an ending share count of close to 370m vs. 396m at Q3

Net debt at Q3 is ~$6.5bn and another $1.3bn outstanding in preferred stock makes it $7.8bn. Trailing EBITDA at Q3 is $2.2bn so leverage is ~3.55x (including preferreds) and an EV/EBITDA multiple of 5.4x.

For reference, 2019 and 2020 EBITDA were $2bn and $2.2bn respectively — in-line with trailing numbers.

Free cash flow is starting to normalize from the anomaly that was 2020 — I’ve seen a lot of investors quoting low FCF multiples for Qurate using the 2020 numbers… It’s possible we need some of those investor expectations to dissipate before this idea can work… Trailing figures are starting to look more “normal” after Q3.

Trailing FCF looks like $855m or $2.15/share — good for a lowly 4.7x multiple. This business is likely worth double that amount but it is more susceptible to current macro headwinds than other businesses I’m invested in.

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