Lionsgate Entertainment (LGF): Misunderstood, Too Cheap to Ignore
Posted June 11th, 2008 by Frank Lara Jr
Passing on an article from fellow WallStNewsletters.com site CollegeAnalysts.com. 
They argue that Lions Gate Entertainment Corp (NYSE:LGF) is the most misunderstood media company on the planet. Of course our own Steve Reeves has something to say about the subject. Read on.
Lionsgate has made 2 important and very successful acquisitions over the past 2 years.
The first was the purchase of Debmar-Mercury, which has become a powerhouse in the TV distribution and syndication world, including distributing South Park, Tyler Perry’s House of Pain, Deadzone, and Deadliest Catch. Debmar has also been in the process of securing world-wide syndication deals for a new show based on Hasbro’s Trivial Pursuit.
The second successful purchase was of Mandate Pictures. Mandate was one of the main producers of Juno. Since Lionsgate purchased Mandate before Juno’s release, LGF should see significant contributions from the movie, which the CEO has estimated to be “high teens double-digit millions.” Mandate has also been involved in the Harold and Kumar Franchise, which just put out its second movie, which should be very profitable ($12M budget, did $37M+ box office and should do very well on DVD).
At a multiple that should be closer to 12 times cash flow, LGF should be trading at $14 per share
Click here to read the Full LGF Analysis.
Then there's Reeves' take:
In my opinion LGF is not undervalued because it has a market cap more than $1 billion while its equity is less than $200 million, to make things even better they have negative net tangible assets. Juno alone can't save the entire ship, sorry.
Lions Gate Entertainment Corp is still in the red as of the latest Fiscal Year, when will the profits come?
LGF needs to prove first that they can be a profitable company, the end. I do like that there is only a 2.89% Short Float and they are near the bottom of their 52-week range of $8.43 to $11.65. Great analysis on www.CollegeAnalysts.com but I look for companies and investing on a different level.
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Disagree with the Reeves
Reeves,
While I usually consider you a star, I am going to have to respectfully disagree with you here. I had a totally different take here. The detail in the article was very impressive and those college analysts got me pretty excited about Lionsgates future. There was some real solid information I would never find by just looking at their balance sheet or reading an article about their most recent quarter.
Did we read the same article Reeves? Why would you mention or focus on "net tangible assets?" This isn't a bank or an industrial or oil company, it is a movie studio. Their value is almost entirely in their 11,000 title library and future rights to movies, television shows, etc, which are "intangible assets." The other question I had was where in the article did it suggest Juno was the answer to all their problems. My take on the article was the very opposite, that the company has gotten so diversified that one movie would not have a material effect on the company's results. Also Reeves, what is your take and response on their impressive cash flow and cash balance?
I also disagree with your technical analysis, as the company is not in the bottom of its range, as it is 15% above that bottom, and if you look at the 200 day moving average, as opposed to the 52 week high, which was 1 year ago, it is right around, if not above it.
Overall, I was pretty intrigued by the article so much I listened to their last conference call, and I plan on going through the 10-K this weekend. Also, you asked when the profits will come, and I think the author was pretty enthusiastic that they would come this year. I am not sure if that author is correct, but he seems to have a good understanding of the company. If he is, I may have to find out who he is and hire him to come work at my fund. After I put in some due diligence here, I will come to my own conclusion. But either way, a profit would show significant year over year improvement. And god I love that cash flow and buyback!