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Analyst Downgrades Lionsgate on 'FearNet'

25 Sep, 2006 By: Erik Gruenwedel

One business day after posting a 52-week high share price, Lionsgate's stock Sept. 25 was downgraded by an analyst concerned about the mini-major's reported stake in a horror channel partnership with Comcast Communications and Sony Pictures Television.

David Miller, with Sanders Morris Harris in Los Angeles, downgraded Lionsgate's stock from “strong buy” to “buy” based on the premise the studio should retain at least 50% — not a reported 33.3% — equity interest in the horror channel set to launch on Halloween, according to a report in The Los Angeles Times.

Miller, in a report, said Lionsgate had confirmed the 33.3% equity stake.

Lionsgate, Sony and Comcast have not publicly commented on the channel, although Lionsgate, whose immense horror catalog includes The Devil's Rejects and the “Saw” franchise, among other titles, has mentioned interest in such a venture for more than year.

“Based on our analysis, a 33.3% stake now implies a hypothetical enterprise value of $155.4 million [for FearNet] assuming the achievement of 10 million [cable channel] subscribers within year one, versus our previous assumption of $233.4 million, which would have correlated to a 50% stake,” wrote Miller.

“As such, we are now promoting … a lower, 12-month price [stock] target of $12.40 [per share from a six-month target of $14.30].”

Lionsgate's shares closed Sept. 25 at $10.28 per share.

A representative from Lionsgate was not immediately available for comment.

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