Valuehalla Posted March 13, 2018 Share Posted March 13, 2018 Hi Petec, thx for your comment. - Revenue is just shrinking very slightly. I made comments on this on 14 Feb here in the board after Q4 figures came out. Please read that. - I expect a total revenue of more than 24 B in 2018. I add as a pdf-file my updated estimations on the revenue for the next years, based on Q4 figures for download below. As Petec I also calculated app 1 % revenue decrease for 2018, but we will see. Maybe the outcome is better. - Storey and Patel are totally committed to the dividend. - The dividend is sustainable and not in question. - In LVLT Storey and Patel showed, they are able to drive down costs, improve the margins and increase the revenue slightly. See LVLT standalone figures for 2016 and 2017. - The posted seekingalpha article miss a view on the class action, which is pending since mid of 2017. So this is an unknown aspect and for sure the outcome is a risk on the investment. After the classaction was filed, the stock tanked form a high of 27 US$ per share massivly. I think the lawsuite is still weighing on the price heavily.CTL_Revenue_Prognose_after_Q4_2017.pdf Link to comment Share on other sites More sharing options...
Guest longinvestor Posted March 13, 2018 Share Posted March 13, 2018 Trust in management, indeed. Being a long termer with LVLT, I’ve had to head scratch since this deal was announced. What I do like about this trust thing is that I’m getting paid to wait for all the goodness to pour forth from the new CTL. Shortly after the deal was approved late last year, the stock dipped down to $13 and the divvy of $2.16 was a sweet 15%. Some of the cash payout went back into CTL, opportunistically, based on trust in Jeff and Sunit. This time around, the divvy is an explicit statement, in 2010-13, I trusted the same two gentlemen but with nothing else. Jeff/Sunit have earned my trust. I have some more time to verify thanks to the divvy. I’m tickled that the zombies at the erstwhile CTL had this divvy in place. Keeping everyone honest here. Link to comment Share on other sites More sharing options...
petec Posted March 13, 2018 Share Posted March 13, 2018 Hi Petec, thx for your comment. - Revenue is just shrinking very slightly. I made comments on this on 14 Feb here in the board after Q4 figures came out. Please read that. - I expect a total revenue of more than 24 B in 2018. I add as a pdf-file my updated estimations on the revenue for the next years, based on Q4 figures for download below. As Petec I also calculated app 1 % revenue decrease for 2018, but we will see. Maybe the outcome is better. - Storey and Patel are totally committed to the dividend. - The dividend is sustainable and not in question. - In LVLT Storey and Patel showed, they are able to drive down costs, improve the margins and increase the revenue slightly. See LVLT standalone figures for 2016 and 2017. - The posted seekingalpha article miss a view on the class action, which is pending since mid of 2017. So this is an unknown aspect and for sure the outcome is a risk on the investment. After the classaction was filed, the stock tanked form a high of 27 US$ per share massivly. I think the lawsuite is still weighing on the price heavily. Hi I've read the entire thread and the L3 one and your comments have been very useful. Thanks also for the pdf. I think it's practically impossible to predict revenues to within 1% accuracy but I find it encouraging that the q4 revenue decline had slowed to 1.5%. I'm using their proforma numbers which also incidentally explains the difference between our absolute revenue projections because I'm starting from a lower number for 2017 (they excluded various things in their 2017 proforma number). I have no idea what they will do with the divi and I certainly have no idea whether Storey and Sunit are committed to it or are just singing the party line for as long as Post is in his post. My point is more that a cut would drive the intrinsic value up and the share price down and would be a nice opportunity. Link to comment Share on other sites More sharing options...
petec Posted March 14, 2018 Share Posted March 14, 2018 Apologies for if this is a dumb question but I am pretty new to this industry. My understanding is that back in the depths of internet history people thought these companies would have pricing power as an ever growing amount of data was forced down a relatively fixed number of fibres. The data growth came through, but the technology kept improving to force more bits down the same fibre so pricing power never arrived. I was struck by the stat in the Corvex presentation that data volumes will double 2016-2020. In other words, what took 40 years to devellop will take 4 years to double. With that kind of exponential growth, is there a tipping point (especially in a newly deregulated market) somewhere where technology and fibre additions can't keep up? This possibility doesn't seem to have been discussed much here or on the L3 thread. That means it's either pie-in-the-sky, or people are so used to being disappointed that when pricing power comes, even if it is temporary, it will be a huge surprise. Which is it? I'd really appreciate: - Any data on this - Explanations of technological limits in laymans terms - Any estimates of capacity utilisation if they are relevant - Information on how hard it really is to add capacity and what the bottlenecks are - Any data on the impact of deregulation that goes past the headlines we've all read about how "the champagne corks will be popping at CTL". I won't be quite so appreciative of aggressive opinions given without supporting data ;) Link to comment Share on other sites More sharing options...
Valuehalla Posted March 14, 2018 Share Posted March 14, 2018 Very interesting question from Petec. I have no idea about that. I am invested in LVLT/CTL because its cheap. MarketCap of 19B and a FCF of 3B is great. Further i am convinced the revenue is more or less stable. Synergies and margins will improve the FCF like in LVLT standalone. But its true, that many investors of LVLT hoped years ago, what you described: Volume will go up and will create pricing power. As i know LVLT has / had many unused dark fiber lines, which could easily and cheap be activated and this was often mentioned as a moat to competitors, who could not do that in the same easy cheap way. (But I dont know if this is true) Maybe Longinvestor knows more about it. Under Storey and Patel they could bring down the costs and increase the margins, so that the company gets huge and impressive profitable. This is what i also expect from them, for the entire CTL in the future. Net Neutrality & Pricingpower for sure would be the best tailwind. Link to comment Share on other sites More sharing options...
Guest longinvestor Posted March 14, 2018 Share Posted March 14, 2018 Apologies for if this is a dumb question but I am pretty new to this industry. My understanding is that back in the depths of internet history people thought these companies would have pricing power as an ever growing amount of data was forced down a relatively fixed number of fibres. The data growth came through, but the technology kept improving to force more bits down the same fibre so pricing power never arrived. I was struck by the stat in the Corvex presentation that data volumes will double 2016-2020. In other words, what took 40 years to devellop will take 4 years to double. With that kind of exponential growth, is there a tipping point (especially in a newly deregulated market) somewhere where technology and fibre additions can't keep up? This possibility doesn't seem to have been discussed much here or on the L3 thread. That means it's either pie-in-the-sky, or people are so used to being disappointed that when pricing power comes, even if it is temporary, it will be a huge surprise. Which is it? I'd really appreciate: - Any data on this - Explanations of technological limits in laymans terms - Any estimates of capacity utilisation if they are relevant - Information on how hard it really is to add capacity and what the bottlenecks are - Any data on the impact of deregulation that goes past the headlines we've all read about how "the champagne corks will be popping at CTL". I won't be quite so appreciative of aggressive opinions given without supporting data ;) David Klein has a decent analysis and he's been at it with LVLT and now CTL for many years, https://www.iiex.club/interactive-model The key number I watch is the connected (enterprise) building count. I believe it stands at just over 100K. It doubled with the CTL merger. Around 2010, I remember that being less than 10K. (need to verify). They have gone 10 fold. The path to riches is as fast as the building count. At some building count number, they become a behemoth. Is it 500K or 1000K, I have no idea. Exact same thing as the last mile in residential, this was the boot the incumbents had on LVLT's throat as they were floating around with no strategy other than "build it and they will come". Storey came in and went after enterprise building count. It makes sense, they have the biggest pipes and need large data to flow through them. Server farms, NYSE, Library of Congress, the Universities, the Military etc. They are all customers of CTL. Link to comment Share on other sites More sharing options...
Valuehalla Posted March 23, 2018 Share Posted March 23, 2018 https://seekingalpha.com/article/4158298-centurylink-storey-trust?auth_param=1emn1k:1db7oa2:e011ab6b89fcdd6d926ff704404ffe06&uprof=44&dr=1 Link to comment Share on other sites More sharing options...
petec Posted March 26, 2018 Share Posted March 26, 2018 The more I read about this the more I think the capital structure is wholly inappropriate. A dividend cut here would add a lot of value. Link to comment Share on other sites More sharing options...
petec Posted March 26, 2018 Share Posted March 26, 2018 Can someone who understands more than me (which will be most of you) explain why SD WAN might be a threat to CenturyLink? I came across a reference to that in my reading but can't find an explanation. Link to comment Share on other sites More sharing options...
LightWhale Posted March 27, 2018 Share Posted March 27, 2018 I'm no expert, but here's my understanding. I'd be happy to know whether I got this all wrong... The focus of the combined company is enterprises. It gets a portion of enterprises revenue from legacy MPLS (they won't disclose how much). Over time, MPLS should be displaced by SD-WAN (cheaper, better, more secure). Because of its physical networks, CTL had an advantage over some comps regarding MPLS. The threat comes from the fact that SD-WAN can be provided over public IP broadband. So whatever advantage CTL had in the enterprises sector over off-net providers is supposedly vanishing. Furthermore, the off-net providers (such as Windstream) do not need to maintain the actual infrastructure, so their costs will be lower, and CTL might find it hard to compete in such marketplace. That's the theory. For now, CTL claims MPLS to still be growing, and it offers hybrid solutions of MPLS and SD-WAN, particularly to companies that use the cloud. And since the transition has so far been gradual, meaning that companies move to SD-WAN without immediately dumping MPLS, it helps to maintain customers who prefer not to split those services among various providers. Link to comment Share on other sites More sharing options...
petec Posted March 27, 2018 Share Posted March 27, 2018 Great, thanks. I am torn between thinking "this is too cheap on FCF" and "this is operationally and financially levered, FCF can evaporate fast, and you don't know enough about it to handicap the odds". Caution might have to be the better part of valour for now. Link to comment Share on other sites More sharing options...
LightWhale Posted March 27, 2018 Share Posted March 27, 2018 Great, thanks. I am torn between thinking "this is too cheap on FCF" and "this is operationally and financially levered, FCF can evaporate fast, and you don't know enough about it to handicap the odds". What are the main threats you see to FCF? Link to comment Share on other sites More sharing options...
SI Posted March 27, 2018 Share Posted March 27, 2018 consumer ebitda erodes faster than they can grow over with synergies and enterprise. Link to comment Share on other sites More sharing options...
Guest longinvestor Posted March 27, 2018 Share Posted March 27, 2018 consumer ebitda erodes faster than they can grow over with synergies and enterprise. Yes, that is not out of the realm of possibilities. Comforting fact is that consumer business is 25% of the combined business and shrinking. Well, LVLT was best described as a melting ice cube, so this is nothing new. Paradoxically, the networking assets are durable as evidenced by them withering the melting ice cubes. Just wishing that we will see durable and competitive advantage. Some day! Hopefully before the next ice age. We’ll all be dead by then. Link to comment Share on other sites More sharing options...
Valuehalla Posted March 30, 2018 Share Posted March 30, 2018 Temasek Holdings (Fund of Signapur Gov) increased its holdings in CTL and holds now 9,7 % reported on 27th March 2018 (before they hold 8,7 %) http://ir.centurylink.com/Cache/392810342.pdf Temasek was an anker investor of LVLT for many years. Their former share of LVLT was 18 %. LVLT shareholders would own 49% of the new entity. So they increased their holdings since the acquisition was finalized till now. ANKER INVESTORS ARE NOW: Temasek 9,7 % Corvex (Keith Meister) 6,7 % Longleaf (Mason Hawkins) 6,7 % Link to comment Share on other sites More sharing options...
petec Posted March 30, 2018 Share Posted March 30, 2018 Great, thanks. I am torn between thinking "this is too cheap on FCF" and "this is operationally and financially levered, FCF can evaporate fast, and you don't know enough about it to handicap the odds". What are the main threats you see to FCF? Declining revenue on a fixed cost base - both operationally fixed but also very financially levered. 1% decline in revenue is 10% decline in FCF, all else equal (i.e. if you can't cut costs and capex to offset). Now, obviously for the next couple of years there will be a lot of cost outs and that will more than offset declining revenue. Great. But, after that, it's not so clear, so what you need is confidence in revenues. Given the history of this very price competitive industry, and given how hard it is to guide, and given how little I really know about it, I find it very hard to get confidence on that. I can see the positives and negatives but I don't know how to weight them. Still very tempted though on 6x FCF. Link to comment Share on other sites More sharing options...
Valuehalla Posted April 2, 2018 Share Posted April 2, 2018 Thats exactly the point. For the short and medium term there is enough costsreduction and synergies to power the FCF. And in the long run the increasing segments of the revenue will overcome the shrinking segments. There is no doubt to me. I published here already on 13th March 2018 the revenues per segment YoY / QoQ, incl. a prognose for the future. And to me it looks good. Also from Q3 2018 figures on, the sale of the colocation centers which was done in 2017 and reduced the revenue, will not weigh anymore on the "optic" of the YoY comparisons of the total revnenue. Link to comment Share on other sites More sharing options...
LightWhale Posted April 3, 2018 Share Posted April 3, 2018 1% decline in revenue is 10% decline in FCF, all else equal (i.e. if you can't cut costs and capex to offset). But, after that, it's not so clear, so what you need is confidence in revenues. Given the history of this very price competitive industry, and given how hard it is to guide, and given how little I really know about it, I find it very hard to get confidence on that. I can see the positives and negatives but I don't know how to weight them. Another problem is the possibility that rates rise significantly. It will make it harder to roll the debt. What S&S did in LVLT was achieved against the backdrop of falling rates. There's a big difference between running downhill and uphill. CTL's >5Y bonds are trading at yields equivalent to B/-B credit rating. In Bloomberg, aggregate projection 5Y out remains relatively constant, at ~23.7B rev and ~9B EBITDA (ajd.) This leaves about 1B a year to delever. With 38B of debt, and 0.11 Debt/EBITDA multiple to delever every year, it will take CTL a while to rerate (EDIT: they can also "delever" the ratio by growing the EBITDA). On the other hand, according to the guidance, Capex is elastic, at 16% of revenue. Also, when listening to S&S on conference calls, the subtext is that they expect undeclared revenue synergies. Plus since enterprise is 75% of revenues, it only requires a modest growth, around 1/4 of the decay in retail, to keep revenues constant. At FCF yield of 17%, and with the industry consolidating, the compensation for the risk seems adequate. The more I read about this the more I think the capital structure is wholly inappropriate. A dividend cut here would add a lot of value. Couldn't agree more. Reducing debt at triple speed (3.3B annually) is much more sensible in the long term. Link to comment Share on other sites More sharing options...
petec Posted April 3, 2018 Share Posted April 3, 2018 Valuehalla - I'd really appreciate it if you could lay out your revenue thesis in more detail. I have read your posts and you are right that if we extrapolate current revenue trends then revenues are going to be fine. But why should we extrapolate? Trends don't seem to me to have been too stable in this industry in the long run. So what's driving growth in your view? Is CTL going to take share, and if so why? Is industry growth going to accelerate, and if so why? I just don't know enough to answer these questions so any help is appreciated. Lightwhale - rising rates is a headwind but the debt is so long term that they can de-lever materially in the relevant timeframe and offset any rate rise. Of course that would be much easier if they cut the dividend, which is the obvious thing to do. If they pay down debt then the market cap will rise at a stable multiple, and you'd probably get a higher multiple so the equity return could be huge. That's far more attractive than clipping a dividend. Link to comment Share on other sites More sharing options...
Valuehalla Posted April 3, 2018 Share Posted April 3, 2018 Petec- i tracked the revenue segments in all quarters from 2014 on (even in many smaller segments than mentioned in my overview & prognose) and the development is nearly all time constant: 40 % of the revenue is all time stable. 27 % is shrinking 10 % YoY all time and 33 % is increasing, all time app 4 % YoY. During the 4 years this was all time the same. In 2017 they sold collocation centers, which means a one time dropp in revenue, cause of the sales. The sale didnt effect the development of the mentioned segments. It is correct that just a slightly higher rate than the 4 % of the increasing revenue-segments, will lift the total revenue very fast. And that is what it looks like, after the last 2 quarters. Mainly powered by LVLT and one revenue segment of CTL. Lightwhale - On the last conference call there was an information concerning the debt: weighted average cost of debt is currently about 5.7% with 65% being fix rate and 35% being variable-rate debt. So this sounds good or not to you ? Link to comment Share on other sites More sharing options...
petec Posted April 4, 2018 Share Posted April 4, 2018 Thanks - that's very helpful. Link to comment Share on other sites More sharing options...
Valuehalla Posted April 5, 2018 Share Posted April 5, 2018 There seems to be some news concerning the class-action lawsuite: https://arstechnica.com/tech-policy/2018/04/centurylink-fights-billing-fraud-lawsuit-by-claiming-that-it-has-no-customers/ Source: https://arstechnica.com/wp-content/uploads/2018/04/centurylink-memorandum-on-stay.pdf Link to comment Share on other sites More sharing options...
Valuehalla Posted April 5, 2018 Share Posted April 5, 2018 Temasek Holdings (Fund of Signapur Gov) increased AGAIN its holdings in CTL and holds now 11% reported on 4th April 2018, last reported 9,7 % on 27th March 2018 and before they hold 8,7 %. http://ir.centurylink.com/Cache/392908984.pdf Temasek was an anker investor of LVLT for many years. Their former share of LVLT was 18 %. LVLT shareholders would own 49% of the new entity. So they increased their holdings since the acquisition was finalized till now. ANKER INVESTORS ARE NOW: Temasek 11,0 % Corvex (Keith Meister) 6,7 % Longleaf (Mason Hawkins) 6,7 % Link to comment Share on other sites More sharing options...
Valuehalla Posted May 9, 2018 Share Posted May 9, 2018 Interesting article about CTL: https://seekingalpha.com/article/4171580-centurylink-buy-solid-dividend-keep-increasing-revenues?auth_param=1emn1k:1df50bo:b9cacdac94abcddea983ea60af152836&uprof=44&dr=1 Today we will get the Q1 figures. If the revenue is higher than 6B for the first quarter, this would be a very strong sign. Link to comment Share on other sites More sharing options...
Valuehalla Posted May 9, 2018 Share Posted May 9, 2018 1Q 2018 Earnings are out: http://ir.centurylink.com/Cache/1001236852.PDF?O=PDF&T=&Y=&D=&FID=1001236852&iid=4057179 http://ir.centurylink.com/Cache/1001236853.PDF?O=PDF&T=&Y=&D=&FID=1001236853&iid=4057179 - No positive or negative surprise - all figures in the range of the expectations - outlook for full year 2018 is reiterated - Revenue was 5,945 B in Q1 - Free Cash Flow: 852 M in Q1; expected for the full year 3,15 to 3,35 B - MarketCap was 19,464 B on 18,04 $ closing price today - Long-Term Debt & Credit Facilities down from 37,238 B end Q4 to 36,94 B end of Q1 Conference call: - Dividend will be maintained, dividend payoutrate in 70s % - Sales in second quarter will be better than first quarter, which had just 90 days - EBITDA will increase every quarter during this year & next year, margins will improve - They expect "good grows in FCF during the next few years", driven by EBITDA increases - SD-WAN revenue grew 45%, but represented less than 1% of total revenue - net debt to adj EBITDA ratio at 4.3x; expect to reach low end of target leverage range of 3x to 4x by end of 2019, driven by growth in adjusted EBITDA - effective income tax rate in Q1 was 51% due to tax reform and purchase price accounting adjustments. Expect tax rate to be lower in subsequent quarters. Overall expect effective tax rate app 25% in full year 2018 Transcript: https://finance.yahoo.com/news/edited-transcript-ctl-earnings-conference-054621149.html?.tsrc=applewf&guccounter=2 Link to comment Share on other sites More sharing options...
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