LBTYA - Liberty Global

[scorpioncapital]

For cable to get into 5g wouldn't they need to be involved with partnering or owning a mobile network ? Or we are talking about another angle ? Would it mean cable co capex should rise dramatically ?

 

On a side note not looking good for liberty outside USA , "BT will be part-nationalised and every household will be offered free broadband if Labour win the election, they have said.

 

The announcement will be made by party leader Jeremy Corbyn, who plans to pay for the scheme by taxing multinational technology firms such as Amazon, Facebook and Google."

 

 

 

[cameronfen]

For cable to get into 5g wouldn't they need to be involved with partnering or owning a mobile network ? Or we are talking about another angle ? Would it mean cable co capex should rise dramatically ?

 

On a side note not looking good for liberty outside USA , "BT will be part-nationalised and every household will be offered free broadband if Labour win the election, they have said.

 

The announcement will be made by party leader Jeremy Corbyn, who plans to pay for the scheme by taxing multinational technology firms such as Amazon, Facebook and Google."

 

For the first part why do you think telcos have been buying cable cos and vice versa.  They all recognize this necessity. 

 

As far as the UK, what are the odds labor wins?  I feel it is quite low.  Also if Corbyn forms a coalition which is the only way he could win, what are the odds people go along with that? 

[rogermunibond]

5G primer

 

https://www.cnet.com/news/the-5g-wireless-revolution-explained/

 

Cable cos have some advantages of a fiber backhaul network, so ostensibly could sell service to wireless carriers who have to build out denser small cell networks.

 

Really the ones who stand to gain the most are tower cos - AMT, SBAC, CCI

[cameronfen]

5G primer

 

https://www.cnet.com/news/the-5g-wireless-revolution-explained/

 

Cable cos have some advantages of a fiber backhaul network, so ostensibly could sell service to wireless carriers who have to build out denser small cell networks.

 

Really the ones who stand to gain the most are tower cos - AMT, SBAC, CCI

 

Why do tower cos have most to gain out of curiosity? 

[Spekulatius]

5G primer

 

https://www.cnet.com/news/the-5g-wireless-revolution-explained/

 

Cable cos have some advantages of a fiber backhaul network, so ostensibly could sell service to wireless carriers who have to build out denser small cell networks.

 

Really the ones who stand to gain the most are tower cos - AMT, SBAC, CCI

 

Why do tower cos have most to gain out of curiosity?

 

Well, 5G will need lots of towers, because of reach limitations.

 

I am not a physics professor, but generally higher frequencies means less scatter (which means line of sight needed) and higher atmospheric absorption. I think the atmosphere is pretty opaque for frequencies above ~50 GHZ due to water absorption. 5G operates below that but absorption sure will go up at lower frequencies already. Water content in the atmosphere differs with weather conditions and of course there is rain.

[scorpioncapital]

It's just a hair above 1x revenues. There was a book by Ken fisher in the 70s that tried to create a filter saying 1x revenue was pretty darn cheap, (putting aside free cash flow , of which liberty also has). The major worry I see are declining business (or infinite need for profit reducing capital) due to 5g and over regulation in europe.  I think the low interest environment is partly to blame because if money was more scarce obviously a largely built existing capital intense business is going to be more valuable. Low rates tend to promote over building. On the other hand every building boom still produced the end asset, it wasn't wiped off the face of the Earth even if the capital was destroyed. Even if it took many years to be fully utilized again or government had to step up.

 

More nationalization news out of UK

 

The quest to provide the fastest broadband services has become the subject of intense political scrutiny, with Boris Johnson demanding full-fibre broadband provision to every UK home by 2025

 

https://news.sky.com/story/labour-broadband-pledge-stalls-talktalk-sale-11861708

[cameronfen]

5G primer

 

https://www.cnet.com/news/the-5g-wireless-revolution-explained/

 

Cable cos have some advantages of a fiber backhaul network, so ostensibly could sell service to wireless carriers who have to build out denser small cell networks.

 

Really the ones who stand to gain the most are tower cos - AMT, SBAC, CCI

 

Why do tower cos have most to gain out of curiosity?

 

Well, 5G will need lots of towers, because of reach limitations.

 

I am not a physics professor, but generally higher frequencies means less scatter (which means line of sight needed) and higher atmospheric absorption. I think the atmosphere is pretty opaque for frequencies above ~50 GHZ due to water absorption. 5G operates below that but absorption sure will go up at lower frequencies already. Water content in the atmosphere differs with weather conditions and of course there is rain.

 

Right but won’t most of the towers be small cells?  Will tower cos own the small cells?  Will that capital earn a good RoI? 

[Jurgis]

I added a lot to this yesterday while being drunk.

 

I think I will decrease my position today while being sober.

 

Over and out.  :o

 

I sometimes feel like that's my style of investing.  ::)

[maybe4less]

Cable cos have some advantages of a fiber backhaul network, so ostensibly could sell service to wireless carriers who have to build out denser small cell networks.

 

 

If 5G is a great technology that everyone wants with good economics, no need for cable companies to sell service to wireless carriers, they can use their networks to provision their own 5G service.

[cameronfen]

Cable cos have some advantages of a fiber backhaul network, so ostensibly could sell service to wireless carriers who have to build out denser small cell networks.

 

 

If 5G is a great technology that everyone wants with good economics, no need for cable companies to sell service to wireless carriers, they can use their networks to provision their own 5G service.

 

I think you are confusing the telco network which is not actually mostly physical and is mostly broadcasting towers, with an actual physical network of fiber, which is what a 5g small cell operator needs which currently mainly cablecos have. 

[maybe4less]

Cable cos have some advantages of a fiber backhaul network, so ostensibly could sell service to wireless carriers who have to build out denser small cell networks.

 

 

If 5G is a great technology that everyone wants with good economics, no need for cable companies to sell service to wireless carriers, they can use their networks to provision their own 5G service.

 

I think you are confusing the telco network which is not actually mostly physical and is mostly broadcasting towers, with an actual physical network of fiber, which is what a 5g small cell operator needs which currently mainly cablecos have.

 

No, that's exactly my point. The cable companies have physical plant currently close to the end users to which it could attach 5G small cells.

[cameronfen]

^my bad.  I read the first their as referring telcos not cable cos.  Yes this has been happening.  Telcos are buying cable assets, starting cable businesses and vice versa. 

[maybe4less]

^my bad.  I read the first their as referring telcos not cable cos.  Yes this has been happening.  Telcos are buying cable assets, starting cable businesses and vice versa.

 

Ah, yes, sorry I see the ambiguity now!

 

But, yeah, I think we agree, the bottom line is that fixed-mobile convergence is happening and cable companies are in the superior position vs. telcos due to the preexisting cable fiber network.

[scorpioncapital]

Besides the strange nationalization news of broadband in the UK which would decimate Global's business to zero (although they might get a fair market buyout which might actually be a great forced exit for them), fixed-mobile convergence as I understand it is an MVNO. Which means not that the cable company is buying the 5G mobile company but rather that the 5G mobile company is giving the cable company an affiliate-like right to sell the mobile service to their customers. This seems a much weaker form of participating in 5G than owning the mobile network itself and there will be a significant number of customers who bypass the cable co and just get a membership with the mobile co directly. The only reason they might not to do is something like Digi Mobil in Europe which offers extremely cheap mobile plans domestically and cable broadband at home. But why they can offer much cheaper plans than the big ones like Vodafone, Orange, Tmobile I have no idea. For example a Digi plan unlimited mobile data plan is like 2 to 3 euro in Romania vs the big 3 plans being perhaps 8-10 euro. If 5G is deployed with unlimited state and private capital in a low /negative interest rate environment in Europe, then Global's expensive private capital (their cost of debt is I think 4.1%) is just pushing on a string. What worries me is the huge amount of capital that government and infrastructure funds have decided to pump into developing 5G and probably only because 'money is free'. I think we need much higher interest rates for global to do well. There is no reward for all their years of investment in such an environment which is scary.

[skanjete]

All this discussion is beside the point at these share prices in my opinion.

 

The heart of the matter is that Liberty Global contains a collection of businesses that are being valued in the private market at say 10x EV/EBITDA (cf. recent transactions) and the collection itself is being valued by the public market at more like 5-6x EV/EBITDA.

 

So selling privately and buying from the public as they did this year makes all the sense in the world.

 

 

 

[NotSoWise]

Not for Mike....

who would like to manage a big business, with big salary and big stock options. If he sells out everything then what is for him? He wont cut a branch he sits on. He has some influence on John after all these years together, so I am not overly confident in Global to return 100% of its money and shut down.

[scorpioncapital]

2019 adjusted free cash flow is 700 to 750m. At $21.89, what some already call a depressed stock price that's a 13.8 billion equity valuation or 19x Free cash flow. If you include the debt, and add back a billion of interest a year, that's 1.725 billion~ and a valuation of 39 billion (maybe if you say they should keep 3-5 billion cash around we might say 35 billion) or 20x around a 4.9% yield. So...even at $21.89, Liberty appears quite expensive given the risks, low growth, and alternatives to cable broadband in Europe. Given the European competitive structure, profits are not on an up escalator.  European government regulation and 5g are the #1 and #2 risks to Liberty achieving anything but a declining business over time.

[dontdodebt]

If the operational risk and technical and regulatory risk is this high as it seems reading this thread....who in there right mind would do that massive buy back of share instead of derisking as good as possible by pay back debt for example? It seems insane if there is significant operative risks going forward

[no_free_lunch]

I am not sure if 2019 FCF is consistent and representative of future cash flows.  They had $590m FCF in Q2 of this year and then they are negative in Q3.  Last year they did $1.4B FCF.  Their financials are really messy, I am not 100% sure what the true numbers are.

[no_free_lunch]

If the operational risk and technical and regulatory risk is this high as it seems reading this thread....who in there right mind would do that massive buy back of share instead of derisking as good as possible by pay back debt for example? It seems insane if there is significant operative risks going forward

 

I couldn't agree more.

 

Malone made his money investing in the cable industry with high leverage and operating with minimal capex.  It's been a successful playbook but then cable has done well for the past 40 years or so, at least until recently.  You have also had interest rates steadily grind their way down.  I sometimes wonder how smart he is versus just, maybe just a little bit, lucky.

[scorpioncapital]

From what I understand cable companies tend to spend equal to free cash flow . This lowers their tax bill of course but also keeps regulators happy that they are developing connectivity. It is understood they can get a return on this capex, say 8% or 10%? But this implies that the capex eventually ends - for a time, or that there is a cycle of harvesting. I understand that Liberty is now in some sort of harvesting mode except that UK is making more and more demands and probably they are putting more and more into lightening fibre because of the incentives. Still, what is a normalized FCF for Global? or even a normalized OCF? To value a business one has to have some level of consistency and know what returns the regulators will allow given the other competitors. Ultimately are we looking at an 8%, 10%, 12% unlevered fcf return on invested capital, less, more? who knows?

 

Btw, if you compare Global to something like Shaw in Canada it appears dirt cheap. I mean shaw is catering to something like what 15 million people market in Western Canada with very little population growth and has a market cap of 11 billion. Global has now 150 million people if you include Poland and exclude what they sold and if fcf gets to around 1.5 billion , perhaps 3-5x more free cash flow for a market cap in the 13 billions. And it is free to roam where it wants. Of course Shaw itself could be overvalued, although that's what government protected monopolies do, they probably are worth more if the government allows them a reasonable rate of return.

[cameronfen]

I am not sure if 2019 FCF is consistent and representative of future cash flows.  They had $590m FCF in Q2 of this year and then they are negative in Q3.  Last year they did $1.4B FCF.  Their financials are really messy, I am not 100% sure what the true numbers are.

 

Ya the 750m fcf number didn’t make sense to me either.  I think what’s lowering it is “principle payments on amounts financed by vendors and intermediaries”.  This line is in the reconciliation of ocf to fcf in there appendix of many of their reports. They sold a big business so now they are paying down debt.  In a more representative state of the world this should be 0.  Zeroing this line out gets about 3b fcf for last 9mo. 

 

Maybe just wishful thinking, but my guess they are hiding true FCF in the appendix to keep prices depressed for buybacks. 

[dontdodebt]

I am not sure if 2019 FCF is consistent and representative of future cash flows.  They had $590m FCF in Q2 of this year and then they are negative in Q3.  Last year they did $1.4B FCF.  Their financials are really messy, I am not 100% sure what the true numbers are.

 

Ya the 750m fcf number didn’t make sense to me either.  I think what’s lowering it is “principle payments on amounts financed by vendors and intermediaries”.  This line is in the reconciliation of ocf to fcf in there appendix of many of their reports. They sold a big business so now they are paying down debt.  In a more representative state of the world this should be 0.  Zeroing this line out gets about 3b fcf for last 9mo. 

 

Maybe just wishful thinking, but my guess they are hiding true FCF in the appendix to keep prices depressed for buybacks.

 

Malone comes off as a guy that really understands value....but I´m not sure if he/they really go to this length to maximize value. I feel that they would be aware that this kind of tricks other stock holders to feed them self and Malone do not come off as a guy that would do that. He is famous for doing a lot of intelligent financial engineering to erase operative earnings, but I do not think he would work it like this without being transparent about it.

[cameronfen]

I am not sure if 2019 FCF is consistent and representative of future cash flows.  They had $590m FCF in Q2 of this year and then they are negative in Q3.  Last year they did $1.4B FCF.  Their financials are really messy, I am not 100% sure what the true numbers are.

 

Ya the 750m fcf number didn’t make sense to me either.  I think what’s lowering it is “principle payments on amounts financed by vendors and intermediaries”.  This line is in the reconciliation of ocf to fcf in there appendix of many of their reports. They sold a big business so now they are paying down debt.  In a more representative state of the world this should be 0.  Zeroing this line out gets about 3b fcf for last 9mo. 

 

Maybe just wishful thinking, but my guess they are hiding true FCF in the appendix to keep prices depressed for buybacks.

 

Malone comes off as a guy that really understands value....but I´m not sure if he/they really go to this length to maximize value. I feel that they would be aware that this kind of tricks other stock holders to feed them self and Malone do not come off as a guy that would do that. He is famous for doing a lot of intelligent financial engineering to erase operative earnings, but I do not think he would work it like this without being transparent about it.

 

I read cable cowboys but I don't really know Malone better than that.  Perhaps Liberty Global mentioned the adjustment in the conference call, but I don't understand why he wouldn't include repayment of debt in a presentation talking about FCF.  Obviously, if you repay debt this actually decreases FCF, but if you want to tell people what a normalized level of FCF is, you would mention about 1B a year of FCF is subtracted out due to paying of debt, like any other CEO that is trying to increase shareholder value would make this clear in a presentation, so I wonder why they didn't. 

[Spekulatius]

I think it is abundantly clear that in addition to Malone being a very good businessman, he was in the right business, at the right taint in the right place. The place being the US, which is where very cable probably has the best economics in the whole world.

 

Malone could never reproduce the results he had in the US anywhere else because the cable economy is aren’t as good anywhere else. That’s why the LBTYK and LILA vehicles are such failures at least relatively to his US cable ventures.