Madison Square Garden (MSG) Spinoff Completed April 17, 2020
MSGS & MSGE
Significant Discounts, Accumulate, High Conviction
Madison Square Garden Sports Corp. (MSGS, Parent) and Madison Square Garden Entertainment Corp. (MSGE, Spinoff) completed their first day of separated trading yesterday (April 20, 2020), with shareholders of the combined entity seeing a one-day return of +4.4% compared to the S&P 500 Index return of -1.8%. Both companies are trading at discounts to their asset valuations, providing attractive entry levels for investors not yet involved.
Madison Square Garden Sports Corp. (MSGS, Parent Ex-Spin): At $182.44 (close of April 20), MSGS (ex-Spin) is valued at a 25% discount to its net sports teams (Knicks and Rangers) valuation of $5.9bn (grossly valued at $6.3bn excluding a net debt of $396m). Therefore, there is room to reduce this valuation gap in the next year when things likely become normalized after the current coronavirus-related league suspension.
Madison Square Garden Entertainment Corp. (MSGE, Spinoff): At current levels, MSGE (Spinoff) is trading at a huge 60% discount to its net asset-based valuation of $3.9bn, as currently MSGE’s market cap is $1.6bn. Considering MSGE’s expected net cash balance of $1.3bn (after the sale of The Forum for $400m by the end of this quarter), the market seems to only be assigning $300m in valuation to MSGE’s iconic assets like Madison Square Garden and Theater (12 acres of land worth $1.2bn), Air Rights (worth $348m), Christmas Spectacular (valued at $300m), Tao Group’s 77.5% stake valued at $335m, etc.