CTL - CenturyLink

[Valuehalla]

CTL will reduce capex by 400 m $ in 2017

 

http://www.fiercetelecom.com/telecom/centurylink-plans-to-spend-400m-less-2017-capex-expects-level-3-network-synergies

 

In my opinion very good news: it seems that the achievable synergies with LVLT will be higher than expected. First they published figures of 125 m $ reduced capex as synergy from the acquisition.

 

 

 

 

 

[Guest longinvestor]

http://www.omaha.com/money/omaha-born-level-which-laid-fiber-optic-cable-will-cease/article_8259659b-2ba4-5248-90ca-e00eda0a0eec.html

 

Down the memory lane to Omaha!

[Valuehalla]

Acquisition approved by shareholders

 

 

http://www.reuters.com/article/brief-centurylink-and-level-3-shareholde-idUSASB0B5Y1

[Valuehalla]

During the last two days i swapped more LVLT into CTL, so that i am now 70 % in CTL and 30 % in LVLT

[Valuehalla]

Morgan Stanley: CTL Price target 27 US$

 

https://www.streetinsider.com/Analyst+Comments/Morgan+Stanley+Resumes+CenturyLink,+Inc.+(CTL)+at+Overweight/12717838.html

[Valuehalla]

FCC decision to deregulate expected on 20th April

 

"popping champagne corks"

seems that there are good news ahead for CTL & Big T

 

https://www.bloomberg.com/politics/articles/2017-03-30/in-turnabout-fcc-mulls-broadband-deregulation-sought-by-at-t

 

http://finance.yahoo.com/news/u-fcc-vote-reform-45-193605060.html?.tsrc=applewf

 

 

[Valuehalla]

 

 

https://seekingalpha.com/article/4059948-can-centurylink-keep-paying-high-dividend

 

"Conclusion

 

While CenturyLink still has some issues with its current core business, it is taking the right steps to generate future FCF growth. This means that its current dividends are safe, although it might take awhile before management feels comfortable enough to raise their dividends. But who can complain when a company pays out a sustainable 9.2% dividend rate?"

 

 

 

[Valuehalla]

Meanwhile i swapped all my LVLTs in CTLs, so I am 100 % in CTL since 24th March.

 

Probably I will add no further CTLs and await the future development.

The investment seems done to me.

 

I hope that the low of the CTL price is behind us.

 

My avg buying price for CTL is $22,69 (dividend 2,16 $ per share; dividendrate = 9,52 %)

 

My low net avg buyingprice (results from) is discounted by the profits i have made on LVLT shares, that i swapped in CTLs

[Valuehalla]

http://host.madison.com/business/investment/markets-and-stocks/is-centurylink-stock-a-buy-near--week-lows/article_d6e9cd3c-622a-5b90-a34f-aa75673cc02f.html

 

"But assuming all goes as planned, I think CenturyLink stock at today's levels represents a compelling buying opportunity for patient, long-term investors."

 

 

 

 

[Valuehalla]

CTL received more approvals for the acquisition:

 

http://www.prnewswire.com/news-releases/delaware-hawaii-maryland-and-dc-approve-centurylink---level-3-merger-300438270.html

[Valuehalla]

https://seekingalpha.com/article/4062105-buying-safe-market-beating-9-percent-dividend-yield

[Valuehalla]

http://www.fiercetelecom.com/telecom/centurylink-level-3-say-they-don-t-significantly-compete-each-other-for-business-service

[Valuehalla]

FCC scraps most business data service regulations

 

http://finance.yahoo.com/news/u-fcc-approves-easing-business-164113139.html;_ylc=X1MDMTE5Nzc4NDE4NQRfZXgDMQRfeXJpZANjdGkxYW41Y2ZpODJjBGcDZFhWcFpEeHVjejR4TmpkaVpUSTNOeTFtTmprMUxUTmxNbVF0T0dVME1TMDJOMlV4TXpZd05ERXpaalU4Wm1sbGJHUStZM1JzBGxhbmcDZW4tVVMEb3JpZ19sYW5nA2RlBG9yaWdfcmVnaW9uA0RFBHBvcwMwBHJlZ2lvbgNVUwRzeW1ib2wDQ1RM?.tsrc=applewf

 

 

[Valuehalla]

..and some more deregulation for CTL

 

http://www.startribune.com/centurylink-gains-flexibility-to-raise-rates-in-minnesota/420030303/

[Valuehalla]

Q1 figures are out:

 

LVLT: good results to my mind; stable total revenue, but growth in enterprise revenue app 3% (enterprise segment is 75 % of total revenue vs 25 % wholesale segment)

Outlook 2017 for EBITA and FCF reconfirmed, no changes

 

CTL: weak results on low end of published expectations, management still awaits and confirms a revenue u-turn during this year. Confirmation by management dividend payoutratio will go down from app 75 % now to 65 % during next year.

 

LVLT acquisition on track

 

My Summary: no surprises, everything on track, i can not understand why prices of CTL and LVLT are tanking in after hours trade. If we will see again a CTL price below US$ 23 i will add further CTL shares to my portfolio.

[Valuehalla]

CTL management in the conference call on revenue development:

 

"I mean, we've seen the improved sales closed during each successive month, during 2017. January started off a little bit slow, a little bit slower than we had thought it would be. But it picked up somewhat in February, March. We closed more sales than we did in February. And again, in April, it looks like that's going to be a good month as well. So we think we're building momentum with respect to the network sales. And we're also seeing some of that momentum in the IT and managed services as well, especially with the cloud application manager product that we have. And that's really, I think, reinvigorated a lot of our salespeople in terms of being able to help them have a product that we can serve our customers with that allows them to move their workloads from one cloud provider to another, from home premises to all premises. So I think that we're more confident now that we have products that we can use to develop the revenue stream, and we -- that sales force, the separate sales force that we have, they're doing a good job getting traction.We have just put them in place and it took a little while to get them up to speed, but they are making progress now, as are some of the top salespeople in the network side that all sell IT services and Managed Services products. That's really why we're more confident now. Why we have came down somewhat from a quarter ago when talked is basically more or less just due to kind of the slow January that we had and a little bit slower February than expected. But again, we think we're making progress there."

 

Source:

https://finance.yahoo.com/news/edited-transcript-ctl-earnings-conference-043049558.html?.tsrc=applewf

 

[gfp]

a post from someone other than value-halla for once - your CTL stock was recommended by Keith Meister at "Corvex" at today's Ira Sohn conference.  So there you go.  Good luck and godspeed

 

[Valuehalla]

Corvex Managment’s Keith Meister, a protege of Carl Icahn:

 

His pitch is CentruyLink, which is acquiring Level 3. “We would not be pitching CenturyLink in a million years” if it weren’t for the acquisition, he says. Corvex will file a 13D showing it has a 5.5% stake.

 

Meister sees 40% return in  a base case including dividends, with 50 to 70% upside potential including the benefits of corporate tax reform.

 

http://blogs.marketwatch.com/thetell/2017/05/08/sohn-hedge-fund-conference-live-blog-ackman-einhorn-gundlach-offer-top-picks/

 

Video with Meister:

 

http://video.cnbc.com/gallery/?video=3000616695

 

The press about it:

 

http://www.cnbc.com/2017/05/08/corvexs-keith-meister-recommends-centurylink-at-sohn.html

 

https://www.bloomberg.com/news/articles/2017-05-08/corvex-s-meister-pitches-centurylink-as-it-merges-with-level-3

 

 

[eclecticvalue]

Over a 5 year period, it is down 34%, what's the reason? Although, the dividend is tempting.

[Valuehalla]

Mason Hawkins  (CEO Southeastern Asset Management) activity in Q1 2017 concerning LVLT:

 

Shares hold on 31.03.2017

 

Longleaf Partners Fund                            5.958.138 = +/- 0 %        (end of Q4=  5.958.138)

Southeastern Asset Management Inc        27.779.930 =  - 0,9 %        (end of Q4= 27.955.852)

Longleaf Partners Smallcap Funds            5.717.590 =  +/- 0 %        (end of Q4=  5.717.590)

 

The mentioned "vehicles" accumulate app. 11 % of LVLT at the end of Q1 2017

 

So Longleaf Partner Fund is still in LVLT, no swap to CTL until 31.3.2017, no CTL shares mentioned

[Valuehalla]

Great News:

 

"Glen F. Post III will remain CEO until Jan. 1, 2019; then expected to become executive chairman Jeff Storey, Level 3 president and CEO, will become CenturyLink president and chief operating officer upon closing of merger; expected to become CenturyLink CEO upon Post's retirement."

 

http://ir.centurylink.com/file.aspx?IID=4057179&FID=2000840620

 

Maybe our CoBF-Forum was the place, where this succession plan "was born", though probably was the place where it was public outspoken first time  8).  See the posts from longinvestor and me on 8th February 2017!

 

Thanks to the great news, today we saw a good 6% jump in CTL price, trading now around $26, app. highest level since the acquisition was announced in Oct. 2016.

 

WE ARE ON TRACK!

 

[Valuehalla]

After reaching $ 26,06 for CTL yesterday - an all time high after the annoucment of the acquisition in Oct. 2016 - I would like to give an update on my estimated figures of the new formed company, when the merger is completed:

 

Based on $ 26 per CTL share:

- Marketcap will be app. 27,98 B

- EBITA: 10 B

- FCF: 2,65 to 2,91 B, according to synergies 0,95 B p.a. and NOLs the expected FCF will be probably higher

- NOLs will reduce tax-payments 0,650 to 0,675 B p.a. for the next 4 years

- Cash needed for paying the annual dividend of 2,16 $ per share = 2,288 B

- Management expects dividend payout ratio to go down from mid 70% now to mid 60% of FCF

- Revenue 25,642 B, managements expects an increasing revenue from 3Q 2017 on

- NetDebt: 29,14 B + 10 B new debt special for the acquisition, to do the one time payout to LVLT shareholders (9,539B)

 

Level 3 will be the sparta-phalanx inside the new combined company, under the leadership of LVLT stuff: Storey (COO/CEO) and Patel (CFO).

 

Their mission is the same, like they have already done successfully during the last years inside LVLT: integration, reduce debt, stabilize and increase revenue, reduce costs and popp up FCF... well done in case of LVLT. Thanks..go ahead like this!

 

On the side of ownership we have two confident anker-investors: Keith Meister (2,8 % of combined company)  and Mason Hawkins (5,4 % of combined company) with their different vehicles. Both experienced in telecoms. Also Singapur state fond is massiv in LVLT now.

 

I expect a successfull development for the future.

 

[txvalue]

I have about 15 years of telecom mgmt experience and have also invested a good amount in the space. From dealing with both of these companies neither are very well run.  This isn't meant to be overly negative, I just feel this is a case where people look at things via a spreasheet rather than from experience in the marketplace.

 

Level 3 generally has a good quality product, but they are notoriously difficult to deal with and that is going to pressure them quite a bit. Companies like Cogent are much more efficent.  Cogent products are comparable, pricing is typically lower and they deliver solutions in a shorter time frame. As a customer are you going to take the 100Mb fiber connection that takes 10 days (sign up is all digital) to deliver or 90 days of slogging through paperwork and third party contractors when they are priced the same?  In my view Level 3's Internet offerings are going to be pinched over time. They are not as high quality as AT&T and they are getting outcompeted by more nimble players on the other end of the market. Bandwidth pricing is also dropping constantly.

 

Their legacy businesses like Voice are also losing market share to companies that deliver more efficent mechanisms to add/remove/change services.  As an example, I know a major company that has had this experience. Provisioning a new number on L3 takes 2-3 days in many cases. Whereas with a new company they are doing business with the process is literally instant. To top it off many of L3 systems do not work on browsers other than IE, things like the old WilTel portal for example. Assuming pricing and quality are close for what has become a commodity which company do you think will win share over time.

 

Again, their quality is very good, but their business processes/contracts get in the way of monetizing these assets.

 

CTL is in my opinion even worse than L3. In general lower quality products than L3 and so many legacy rolled-up assets and systems. Dealing with them for anything is a tremendous struggle and I think this acquisition is really going to further muddy those waters.

 

With out solid systems it is really hard to sell enterprise and wholesale well at the same time. AT&T is currently the best at this in the market and they are really trying to innovate to improve their process. They have a significant jump on an entity like L3/CTL in this regard.

 

So to keep this from rambling on, L3 has some respect but their business processes leave much to be desired. It would be interesting if someone had a list of the number of logos rolled up in this deal. Just off the top of my head

 

Broawing

WilTel

ICG

Adelphia

Focal

Qwest

Embarq

Global Crossing

TW telecom

 

None of these assets have been intergrated well in my opinion.  Roll-ups are tricky beasts and if business is not great they are a perfect way to distract investors. I would have preferred to see Level 3 focus on what it had than join with CenturyLink.

 

[Valuehalla]

Thx txvalue for your post. Your view from the operative side of the business is a great add here:

 

For me the mentioned subjects are good news. It sounds to me, that there is potential to be lifted up from the management in the future.

 

If competitors can provide a 100Mb fiber connection within 10 days by digital signing in, why CTL/LVLT shall not be able to do it in the future as well. As I remember, during the conference calls, the management has mentioned plans to change the sales process to more automatic in the future. Competition is the best motor for improvements.

 

If you would have described the situation that T or others can offer products and services that CTL and LVLT technically can not, this would be a serious bad aspect for me.

 

In summary I understand your post like LVLT products are excellent, but sales-administration has to be improved.

 

 

[txvalue]

Correct, I think the product(s) L3 offers are fine, they need to refine the process essentially making it easier to do business with them. If they can do this the deal starts to make a lot of sense quickly as you noted.

 

If they can't then L3 has combined with a worse entity and a bundle of debt and a questionable growth story since they have no mobile cash cow like T or VZ. If L3 had sharpely improved operations with their past aquisitions I would be more eager to believe the story or should I say storey :)