Inside Wall Street
THE SWEET MUSIC THAT'S PLAYING AT GAYLORD
Country music has boomed to more than a $3 billion business, accounting for some 16% of all record sales worldwide last year. Gaylord Entertainment, owner of two country-music television networks, as well as the Opryland Music Group and the vast Opryland theme parks and hotel, is on top of it all. Indeed, this relatively undiscovered Tennessee enterprise is developing into an entertainment giant a la Disney. So some investors have been buying up Gaylord, whose shares have risen to 48 from 37 in mid-April.
The company is trying to make shareholders happy in other ways, too. Lisbeth Barron, entertainment maven at New York investment firm S.G. Warburg, notes that because "Gaylord's top management has now come to recognize that it has to attend to improving shareholder value," it will split the stock two-for-one effective Sept. 13.
CABLE CATCH. One move Barron sees on the agenda is the sale of Gaylord's noncore operations, mainly the money-losing cable-TV systems, with 166,800 subscribers, and a profitable TV station in Seattle. She estimates that the cable systems, based primarily in Los Angeles and the Carolinas, are worth $440 million, or about $10.50 a share. Adjusted for taxes and debt, the sale would add 75 to earnings, she feels. The Seattle TV station could be sold for $90 million and could add about 7 a share to earnings, Barron says. She adds that several companies, including Hallmark Cards, which owns 2.5% of the cable systems, are keen on buying it. Another company said to be interested: Tele-Communications.
With the sale of such assets, Barron expects the stock to hit the mid-60s, (mid-30s postsplit). Considering Gaylord's estimated 30% growth rate next year, she says it's cheap compared with other entertainment outfits.
The cable systems Gaylord may sell are separate from the company's cable-network business, which includes Country Music Television (CMT), a 24-hour channel airing videos that is distributed free to 20 million subscribers, and the Nashville Network (TNN), with 57.4 million subscribers.
Gaylord is in the midst of expanding these networks in the U.S., Europe, and Asia. Barron expects CMT and TNN to account for 60% of 1993 earnings, 33% of cash flow, and 30% of revenues.
"Country music is starting to catch fire in Europe and in Asia," says Barron, who notes that CMT Europe is now transmitted via IntelSat to 320,000 cable homes in Britain--a 65% penetration of the cable households in that country. She expects CMT to be available next year in France, Germany, Israel, Italy, Singapore, and Spain. She sees Gaylord earning (pre-split) 88 a share this year, $1.25 in 1994, and $1.65 in 1995. GENE G. MARCIAL