CTL - CenturyLink

[petec]

@walkie - Storey was interesting on the call, saying he doesn't want to acquire more assets but could acquire capabilities to add new products using the existing assets. Make of that what you will. As for debt coming due, as discussed on the call over the next 3 years they have $3.6bn coming due and $6bn in cash allocated for debt reduction. And yes, they specifically mentioned the impact of rising rates.

 

@Spek - good point about the EV on the day. However if the bonds jumped it tells you there was a risk of their not being money good. Had they not been, the equity would have been worthless. I've argued for a long time that the dividend was an existential threat to the equity under some scenarios. Now, less so.

 

@dyow. I respectfully disagree. A 70% payout on an operationally and financially levered company with falling revenues was always uncomfortably high. They were also quite specific that cutting it did not mean they'd changed their view on future cash flows. Maybe they're lying, or maybe they simply see better uses for the cash (which isn't hard). My personal view, which I alluded to months ago on here, is that Glen Post was emotionally & reputationally attached to the dividend. Storey probably couldn't cut it on day 1 with Post still on the board. But Storey had no emotional or reputational investment in the dividend, so regardless of how often they repeated the old Post line that the dividend was safe I never expected him to stick to it unless there was a good business reason for doing so. But there wasn't: the market only briefly flirted with the idea that the dividend was sustainable, so it wasn't helping the share price, and by cutting it Storey can delever, reduce risk, and increase flexibility to add value by growing capex or buying shares if he sees an opportunity. The dividend was a huge anchor, and I'd far rather have a CEO who changes policy when he sees good reason rather than one who barges on ahead regardless. I suspect it just took the board a bit of time to come round to that view, but I always thought the writing was on the wall the day the CEO changed.

 

@LightWhale - interesting theory, but equally they could have funded that by a credit line. If this was the reason I suspect they'd have said so and given it a ton of positive spin, or promised the dividend cut would only last a year. No, I think they want the debt lower because they know it makes the market jittery.

 

@tyler, the timing of the NOL thing is odd, but the point is the merger got them close to the 50% change of control that would cost them the NOL, so a shareholder over 5% would only have to add a little for the NOLs to be lost. They have several big shareholders, so it's a real risk. The risk expires 3 years after the deal, so they've created a poison pill that expires on that date. It sounds sensible to me.

 

I do get why those who liked the dividend might sell now. But I hated it, and have always wanted it cut. So no thesis drift for me. The only thing really worth debating here is whether revenues can stabilise. And at this price all they have to do is stabilise.

[petec]

I have a note that at a recent conference Neel Dev said: "When you go through technology transition, day one there is a step down in terms of ARPU but over time it grows as demand grows, bandwidth grows, connectivity requirement grows...we are leaning into the technology transition even though that might mean a bigger revenue write-down at day one."

 

This was respect to Enterprise. Anyone have context on why ARPU steps down?

 

[tylerdurden]

To me, dividend cut increases the probability that the revenues will be stabilized with additional flexibility on capex so the chances that ctl will work as an investment could be higher after the div cut. I didn’t like them breaking their promise but i give them a second chance as long as they continue cutting costs...

[dyow]

@petec i haven't been following this name long enough - so I'm probably missing a lot of things.  if there was some "politics" involved in initially keeping the dividend he should have put that aside and cut it right away and done what was best for the business. 

 

@tylerdurden fair enough.  My initial thesis was that if CFs were going up the dividend should be safe. that was my basic thesis, i kept it simple, whether right or wrong.  cutting the div means my thesis was wrong.  i don't want to change my thesis and drift. i am less comfortable in the name now but that is because of how i initially approached this trade.

 

I should clarify that i don't think a dividend cut is a bad thing for the business...i think it is a bad thing for the credibility of management and that could have a lingering impact on how the market values the stock going forward.  I've never seen a situation when a stock does well after a dividend cut even if it is the right thing to do.  Yeah it could be different this time..who knows.  I actually own some 2021 options so i would like the stock to go up - i guess we will learn how the market reacts to it.

 

Anyways the market got it right here, and anticipated the dividend cut pretty efficiently.

[petec]

@petec i haven't been following this name long enough - so I'm probably missing a lot of things.  if there was some "politics" involved in initially keeping the dividend he should have put that aside and cut it right away and done what was best for the business. 

 

Totally agree, but it may not have been possible - it's not likely a decision he can make on his own and the board may have taken time to come around. Things like not wanting to discredit the old CEO, who they've worked with for a while, can be a factor in decisions like this, rightly or wrongly. So I suspect he bided his time and brought them round to the idea when the stock was low and it was clear the market didn't value the divi. But who knows.

[walkie518]

interesting market action today

 

guess this was likely an opportunity for new bulls to enter or old bulls to double up?

 

there could be a 2 day lag on the 13D/Gs? 

[tylerdurden]

@ dyow - I was really confident that they were going to keep the div untouched bcs as mentioned, best time to cut the dividend, if they were ever going to do it, was right after the merger probably. CEO actually felt the need to answer that timing question during the call as well although it was kind of a BS answer. My speculation is that they could have kept the dividend but didn’t really see any benefits regarding share price so were compelled to change course. I mean if the share price was above 20 I bet the dividend was not going to be cut. At least not this year. Anyways who cares at this point. I dont really see this move driven by the business performance for now. They could have easily waited another year and picked some extra cost cut benefits before 2020. Seems like they are not increasing capex significantly after div cut either.

 

Counterintuitively, dividend cut actually could enable new investors to come in. There should be some at least who were at the sidelines bcs there was this constant dividend cut rumors pressuring the stock. So now no pressure at all on that which means one less thing to worry about for some perhaps...

[sarganaga]

@ dyow - I was really confident that they were going to keep the div untouched bcs as mentioned, best time to cut the dividend, if they were ever going to do it, was right after the merger probably. CEO actually felt the need to answer that timing question during the call as well although it was kind of a BS answer. My speculation is that they could have kept the dividend but didn’t really see any benefits regarding share price so were compelled to change course. I mean if the share price was above 20 I bet the dividend was not going to be cut. At least not this year. Anyways who cares at this point. I dont really see this move driven by the business performance for now. They could have easily waited another year and picked some extra cost cut benefits before 2020. Seems like they are not increasing capex significantly after div cut either.

 

Counterintuitively, dividend cut actually could enable new investors to come in. There should be some at least who were at the sidelines bcs there was this constant dividend cut rumors pressuring the stock. So now no pressure at all on that which means one less thing to worry about for some perha

 

This was me. Bought a 2% position at Friday's open.

[kab60]

Seems like they'll shop their consumer biz?

 

"Although there are a lot of things we can do to manage the consumer business for cash, we're always open to evaluating other ways to maximize shareholder return from these assets"

 

No idea who'd buy it or for how much, but if they can shed their declining legacy ops and get enterprise growing the case would probably be looked at differently, no? Any idea how integrated these things are - I figure it wouldn't be easy?

[petec]

@sarganaga - mind sharing your thesis?

 

@kab60 - yes I noticed that. Not sure they are looking but clearly open to an offer. Impact depends on cash price vs how much ebitda consumer generates, which we don't know. I doubt they are very integrated with enterprise though - very different businesses and go-to-market, plus one of the major cost/service issues is that CTL is a rollup that *hasn't* been properly integrated.

[sarganaga]

@sarganaga - mind sharing your thesis?

 

@kab60 - yes I noticed that. Not sure they are looking but clearly open to an offer. Impact depends on cash price vs how much ebitda consumer generates, which we don't know. I doubt they are very integrated with enterprise though - very different businesses and go-to-market, plus one of the major cost/service issues is that CTL is a rollup that *hasn't* been properly integrated.

 

First, I don't have any deep insight into the company. I bought it because it's cheap, strengthening its balance sheet, & paying a well covered fairly large dividend. Paying down debt proactively is probably key for me. As long as they do this & don't waste the money saved from the dividend cut, I think this has a good chance to work out well. As far as timing, the stock cratered on large volume the day the unanticipated dividend cut was announced, with widespread anger toward CTL expressed on stock market message boards. Looked like a good entry point to me.

[petec]

Some back of the envelope scenarios for FCF yields in 3 years' time at today's $13.74/share ($14.85bn market cap):

 

Scenario 1: Start with low end of 2019 FCF guide, $3.1bn. Assume 3 years of 3% revenue decline = $2bn of lost revenue, which at a 40% ebitda margin = $800m lost. Assume low end of 3y cost save guide = $800m saved. Assume $6bn of debt paydown at 4% = $240m saved. Totals $3.3bn FCF or a 22% FCF yield.

 

Scenario 2: Taking the middle of the 2019 and cost save guides, and 3 years of 1% revenue decline at a 40% margin, it's $3.25bn - $280m +$900m + $240m = $4.1bn FCF and a 27% FCF yield.

 

Scenario 3: Taking the top of the guidance ranges and 3 years of 1% growth at a 40% margin it's $3.4bn + $280m + $1bn + $240m = $4.9bn FCF and a 33% FCFY.

 

This assumes ebitda changes drop straight to FCF. Effectively I am assuming that working capital, capex, and interest are fixed and they don't pay tax.

 

My conclusion is that revenue trends have to worsen from here for this to look expensive. Any evidence of revenue stabilisation will be good for the stock.

[Spekulatius]

Some back of the envelope scenarios for FCF yields in 3 years' time at today's $13.74/share ($14.85bn market cap):

 

Scenario 1: Start with low end of 2019 FCF guide, $3.1bn. Assume 3 years of 3% revenue decline = $2bn of lost revenue, which at a 40% ebitda margin = $800m lost. Assume low end of 3y cost save guide = $800m saved. Assume $6bn of debt paydown at 4% = $240m saved. Totals $3.3bn FCF or a 22% FCF yield.

 

Scenario 2: Taking the middle of the 2019 and cost save guides, and 3 years of 1% revenue decline at a 40% margin, it's $3.25bn - $280m +$900m + $240m = $4.1bn FCF and a 27% FCF yield.

 

Scenario 3: Taking the top of the guidance ranges and 3 years of 1% growth at a 40% margin it's $3.4bn + $280m + $1bn + $240m = $4.9bn FCF and a 33% FCFY.

 

This assumes ebitda changes drop straight to FCF. Effectively I am assuming that working capital, capex, and interest are fixed and they don't pay tax.

 

My conclusion is that revenue trends have to worsen from here for this to look expensive. Any evidence of revenue stabilisation will be good for the stock.

 

Isn’t Scenario #1 pretty much what happened in the past? It seems pretty much a continuation of the existing trend, so it’s not surprising that the stock has this as a baseline. I would argue that you need a worst case scenario with even worse revenue trends.

[petec]

@Spek - yes, it's what's happening now more or less. If you assume a 5% revenue decline you get to a 19% FCF yield and if you add a 70% contribution margin, 12%. But I haven't seen clear arguments why revenues should get worse. If you have please point me towards them. The debate seems to be more about whether things can improve or not. Given the disruptions of the merger, fx impacts, higher capex, the effort to transform the products and services (making it easier to do business with CTL), and the simple maths of shrinking revenue streams becoming a smaller part of the mix, I am inclined to think the trend should improve - but I don't know how much.

 

@Vinod. Good question. I have struggled to calculate contribution margins for revenues lost thus far because the data is muddied by accounting changes and earnings adjustments. If I assume a 70% contribution margin the FCFY outputs are 18%, 26%, and 34%. Even at 100% the Scenario 1 FCFY is 14%. As for further cost cuts, the $800-1bn 3-year plan announced last week roughly offsets between two-thirds and all (depending on the contribution margin) of the ebitda loss if revenues decline 3% each year for 3 years. If revenues continue declining after that then yes, they need more cost cuts. I'm moderately confident on that front. Everything I have heard suggests the company's systems and processes are inefficient. Storey describes them as "decades old", and the plan to change them as "transformational". Yet the cost cuts announced last week are under 7% of the $15bn total. My read is either there's more to come or Storey is confident the changes will drive revenue or both. Plus, they've guided to a 3 year realisation period for the $0.8-1bn, but they've already said they'd like to accelerate that. Their record on the synergies - taking 1 year to achieve what they targeted for 3 - is impressive. All that said, I take the point that in the end you reach a point where you can't cut more. That's why cutting the dividend and paying down debt is so important.

 

 

[LightWhale]

 

In light of such private market interest, we believe the preferred way

to improve the balance sheet should be through asset sales. Southeastern seeks

to add directors who will bring expertise to such discussions. If asset sales

are more likely in the intermediate term than the short-term, then Southeastern

believes that separate target stocks should be considered for the fiber network

business and for the Consumer business. Such target stocks, or tracking stocks,

would highlight the value in the two disparate parts of CenturyLink, would

provide a path towards eventual actual separation of these segments, and would

add capital allocation flexibility for the Company.

 

 

[dwy000]

The 22%-33% FCF is wonderful only if you can get your capital back.  With revenue drops of 3-4% you simply cannot keep cutting costs fast enough to offset.  And with lower revenues, even the margins will start to shrink soon - and that's a train you cant get off of fast enough.  Unless revenues stabilizes this is a melting ice cube where you need those dividends to repay your initial capital before you can start thinking about returns.

[mcliu]

 

In light of such private market interest, we believe the preferred way

to improve the balance sheet should be through asset sales. Southeastern seeks

to add directors who will bring expertise to such discussions. If asset sales

are more likely in the intermediate term than the short-term, then Southeastern

believes that separate target stocks should be considered for the fiber network

business and for the Consumer business. Such target stocks, or tracking stocks,

would highlight the value in the two disparate parts of CenturyLink, would

provide a path towards eventual actual separation of these segments, and would

add capital allocation flexibility for the Company.

 

Thought these guys were long-term investors. Seems like a short-term way of boosting stock prices.

 

I think CenturyLink's finally making the right moves by cutting the dividend and repaying debt. People are worried that the dividend cut is an implicit sign that cash flows will deteriorate. Which is true in most cases, but not here. This just seems like just prudent capital allocation; make the business safer and get capital allocation flexibility. Guidance also suggests that EBITDA will be stable. The melting ice cube scenario is also not relevant here. At some point, the legacy business will go to zero and the good business will take over..

 

On valuation, why look at CTL on a levered basis? A double-digit levered-FCF yield is meaningless when the cap structure is mostly debt..

[dwy000]

 

In light of such private market interest, we believe the preferred way

to improve the balance sheet should be through asset sales. Southeastern seeks

to add directors who will bring expertise to such discussions. If asset sales

are more likely in the intermediate term than the short-term, then Southeastern

believes that separate target stocks should be considered for the fiber network

business and for the Consumer business. Such target stocks, or tracking stocks,

would highlight the value in the two disparate parts of CenturyLink, would

provide a path towards eventual actual separation of these segments, and would

add capital allocation flexibility for the Company.

 

Thought these guys were long-term investors. Seems like a short-term way of boosting stock prices.

 

I think CenturyLink's finally making the right moves by cutting the dividend and repaying debt. People are worried that the dividend cut is an implicit sign that cash flows will deteriorate. Which is true in most cases, but not here. This just seems like just prudent capital allocation; make the business safer and get capital allocation flexibility. Guidance also suggests that EBITDA will be stable. The melting ice cube scenario is also not relevant here. At some point, the legacy business will go to zero and the good business will take over..

 

On valuation, why look at CTL on a levered basis? A double-digit levered-FCF yield is meaningless when the cap structure is mostly debt..

 

Double-digit levered FCF yield isn't meaningless if the business is stable.  The FCF yield is after debt service.  If the business is stable that's the FCF to equity.  If the business is shrinking it becomes a question of who gets the cash flow - debt repayment or equity holders.

[LightWhale]

J.S. spoke yesterday at a Morgan Stanley conference. His take-home message was that he cannot predict revenue growth because the industry's per-service prices shrink over time. But while technology drives down prices, it also reduces the cost of providing those services. So demand for the services is ever increasing, price per-unit is shrinking, and as long as the company executes well, costs shrink even faster.  He exemplified it with the last five years of LVLT: revenues grew for enterprise customers more moderately than expected, but FCF grew substantially and not through the cutting of capex.

 

Unfortunately it does little to demystify CTL's trajectory.

[walkie518]

looks like revenue recognition is flawed but there are no expected, material changes to the previous press release? how can this be?

 

this is turning into a mess...worse the accounting is under question not on the CTL-side but on Level 3...

 

https://www.sec.gov/Archives/edgar/data/18926/000119312519061757/d706860dnt10k.htm

[sarganaga]

I dumped mine on 2/21. I felt like I had a good entry point early on the day after the big dump. It looked to me like the news sellers had made a mistake, but exited after it traded back down to my entry point. 

[Cigarbutt]

The 10-K has been filed.

Here are some thoughts about a small part of the whole picture, the pension-related potential cashflow effects.

 

The risk-reward looks better now but the business remains in the too hard pile especially given the usual absence of materializing expected "synergies".

 

The following is food for thought for those going long because the pension liabilities will somehow likely impact cashflows going forward, either in a slow insidious way or in a sudden and unexpected way. BTW, the pension part of the balance sheet probably "looked" good at the end of Q3 2018 (higher discount rate, benign stock market environment and after a 500M voluntary contribution (to maximize tax benefit)) but Q4 kind of ruined the numbers and I wonder how this reversal of fortune played a role in the dividend decision.

 

This post focuses on the defined pension liability as the PRBP (even if quite large) can be dealt with more easily. After the 2018 500M contribution, the unfunded part of the defined pension plans went from 2,00B to 1,56B, looking OK from the surface. However, on the asset side, for the 2018 year, the contribution was mitigated by a 349M loss on investments. Most of the improvement for the unfunded part came from adjustments on the liability side. The discount rate used was 4,29% vs 3.57% last year. Interesting because last year 3,57% looked mid-range but 4,29% looks stretched upwards. Typical long-term corporates went from about 3,60% to 3,95% and FFH, for instance, went from 3,2% to 3,6% this year. Maybe, the discount rate is appropriate for the duration of their pension liabilities or there are good reasons but, if anything, the duration seems to have decreased and there may be an element of a less conservative bias. The actuarial gain on the PBO side was 765M, mostly, I assume, from using a higher discount rate. Interesting to note that a small part of the actuarial gain in 2018 came from retirees living progressively shorter lives (a new phenomenon being recognized in the US) with a 38M gain recognized in 2018 and a total of a 419M gain in the last 3 years for that specific item. No wonder Corporate America is in no rush reforming healthcare for a better value proposition as the higher medical costs are more than compensated by people dying sooner, giving rise to a very convenient natural curtailment option.

 

Another interesting feature is that CTL (like many peers) has "benefitted" from relaxation rules adopted years ago allowing companies to delay the recognition (deferral and amortization) of insufficient funding. It's hard to get to specific numbers (and one has to make up his or her mind about appropriate expected returns etc) but looking at historical numbers and using the corridor concept, it appears that CTL has reached its limit in terms of deferral and amortization. Looking at the net periodic benefit expense over time (since 2010 and 2011 when these rules became relevant), the recognition of excess actuarial loss started as a non-material amount and now has reached its cruising speed (178M last year, and avg 185M in each of the last 3 years). This expense has no current year direct cashflow implication but will have to be met by eventual true cashflows.

 

In an ideal world, the defined pension plan's sweet spot in terms of funding should be around 105 to 110% and how CTL will get there is likely a topic left for a later discussion by the Board.

 

In 2007, CTL had a PBO of 469M and the plan was 98% funded. At the end of 2008, the plan became 76% funded after a 52.5M contribution. In 2008, CTL recorded a 28% loss on assets. Q4 2018 felt awkward but it was not exactly an earthquake.

 

Anyways, it seems like a significant risk to me, even if peripheral. The top 100 US defined pension plans have an unfunded pension liability to market cap of about 3%. Market cap for CTL these days fluctuates around 13B.

 

I guess, in the long run, we'll be all dead and Kraven (H/T to a recent post by John Hjorth) used to say "There has to be a balance between the view of value investing as the hanging of beautiful art in a museum and real life" but to win the race, you have to finish the race.

[tylerdurden]

You don’t think they are doing at least ok reagarding “materalizing expected synergies”?

 

I think the most important reason to own this is their record so far on synergies. Declining revenues is different matter of course...

 

The 10-K has been filed.

Here are some thoughts about a small part of the whole picture, the pension-related potential cashflow effects.

 

The risk-reward looks better now but the business remains in the too hard pile especially given the usual absence of materializing expected "synergies".

 

The following is food for thought for those going long because the pension liabilities will somehow likely impact cashflows going forward, either in a slow insidious way or in a sudden and unexpected way. BTW, the pension part of the balance sheet probably "looked" good at the end of Q3 2018 (higher discount rate, benign stock market environment and after a 500M voluntary contribution (to maximize tax benefit)) but Q4 kind of ruined the numbers and I wonder how this reversal of fortune played a role in the dividend decision.

 

This post focuses on the defined pension liability as the PRBP (even if quite large) can be dealt with more easily. After the 2018 500M contribution, the unfunded part of the defined pension plans went from 2,00B to 1,56B, looking OK from the surface. However, on the asset side, for the 2018 year, the contribution was mitigated by a 349M loss on investments. Most of the improvement for the unfunded part came from adjustments on the liability side. The discount rate used was 4,29% vs 3.57% last year. Interesting because last year 3,57% looked mid-range but 4,29% looks stretched upwards. Typical long-term corporates went from about 3,60% to 3,95% and FFH, for instance, went from 3,2% to 3,6% this year. Maybe, the discount rate is appropriate for the duration of their pension liabilities or there are good reasons but, if anything, the duration seems to have decreased and there may be an element of a less conservative bias. The actuarial gain on the PBO side was 765M, mostly, I assume, from using a higher discount rate. Interesting to note that a small part of the actuarial gain in 2018 came from retirees living progressively shorter lives (a new phenomenon being recognized in the US) with a 38M gain recognized in 2018 and a total of a 419M gain in the last 3 years for that specific item. No wonder Corporate America is in no rush reforming healthcare for a better value proposition as the higher medical costs are more than compensated by people dying sooner, giving rise to a very convenient natural curtailment option.

 

Another interesting feature is that CTL (like many peers) has "benefitted" from relaxation rules adopted years ago allowing companies to delay the recognition (deferral and amortization) of insufficient funding. It's hard to get to specific numbers (and one has to make up his or her mind about appropriate expected returns etc) but looking at historical numbers and using the corridor concept, it appears that CTL has reached its limit in terms of deferral and amortization. Looking at the net periodic benefit expense over time (since 2010 and 2011 when these rules became relevant), the recognition of excess actuarial loss started as a non-material amount and now has reached its cruising speed (178M last year, and avg 185M in each of the last 3 years). This expense has no current year direct cashflow implication but will have to be met by eventual true cashflows.

 

In an ideal world, the defined pension plan's sweet spot in terms of funding should be around 105 to 110% and how CTL will get there is likely a topic left for a later discussion by the Board.

 

In 2007, CTL had a PBO of 469M and the plan was 98% funded. At the end of 2008, the plan became 76% funded after a 52.5M contribution. In 2008, CTL recorded a 28% loss on assets. Q4 2018 felt awkward but it was not exactly an earthquake.

 

Anyways, it seems like a significant risk to me, even if peripheral. The top 100 US defined pension plans have an unfunded pension liability to market cap of about 3%. Market cap for CTL these days fluctuates around 13B.

 

I guess, in the long run, we'll be all dead and Kraven (H/T to a recent post by John Hjorth) used to say "There has to be a balance between the view of value investing as the hanging of beautiful art in a museum and real life" but to win the race, you have to finish the race.

[Cigarbutt]

You don’t think they are doing at least ok reagarding “materalizing expected synergies”?

 

I think the most important reason to own this is their record so far on synergies. Declining revenues is different matter of course...

 

...

The risk-reward looks better now but the business remains in the too hard pile especially given the usual absence of materializing expected "synergies".

...

I stand by the substance of my post about the pension liability potential negative cash flow issues but you are correct about that specific statement which conveys a conclusion which appears too strong and was based on limited work done on my part concerning the underlying core business. The statement also assumes that the apparent lack of conservatism for risk management at the pension liability levels permeates through the firm.

 

Here’s (FWIW) an expanded and improved version of that statement:

 

CTL has been able, in the past, to offset traditional asset revenue decline by completing and integrating acquisitions (Embarq in 2009, Qwest in 2011 and others) but the acquisition record, while good in some respects (including the realization of “synergies”), shows a mixed record in terms of the quality and pricing power of acquired legacy assets. It appears that a similar scenario may play out with the combination with LVLT in 2017. Also, an argument could be made that LVLT was a better business (enterprise focus and others), was even better at integrating acquisitions (Global Crossing, Tw telecom and others) and, with the new CEO, CTL may have become more a continuation of LVLT than the previous slow drifting CTL. However, the better acquisition outcomes by LVLT may be related to the fact that the CEO happened to ride the good waves to some extent, the 2017 combination involved a large premium (even accounting for the LVLT 10B NOLs) and resulted in a highly leveraged entity. It seems that present management is achieving the “synergies” (network-related, administrative and some capex-related) but the present capital structure and the growing importance of legacy assets in the evolving industry environment make the realization of the “synergies” even more important. The post provided simply illustrated how a relatively peripheral issue (pension liability) could combine with high leverage and showed how thin the margin of safety really is.

 

The dividend cut of over 50% was the right thing to do (the dividend cut should have happened a long time ago IMO) and may have given rise to an opportunity but not one I’m able to see, even at this level because the timing and nature of the dividend cut decision, in this case, may be a reflection of weakening top-line projections and the amount of time it will take to realize the “synergies” and the “transformation”.

 

If forced to bet, I would say that, despite the huge investments made by competitors in wireless and cloud services, CTL has the potential to eventually produce healthy and even rising free cashflows but one has to assume that the economic, business customer and interest rate spread environments will remain benign for quite some time.

 

The pension liability risk management issue is simply a reflection of that.

[JRM]

I always hate to attribute stock price moves with news, but +4% today as they announce a name change to Lumen Technologies.  You can't make this stuff up.