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LBTYA - Liberty Global


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What determines index dumping timing?

 

No idea. You can probably guess something is going on when small LiLAC has close to as much dollar  volume as gigantic LBTYA...

 

There's probably some game theory involved, nobody wants to be the last to sell because it could be a lower price, so all head for exits fairly quickly, etc.

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How do you guys compare the opportunities and valuation of LILA, LBTYA and other broadband stocks?

 

CHTR/LBRDA is a play on the turnaround of TWC. The story is pretty straightforward and you have the chance for vertical integration down the road. You got Malone himself saying this is a long term high teens - low twenties IRR. This appears to pan out if you assume aggressive buybacks or upside from a potential wireless offering.

 

LILA appears to be the early stages of TCI, but in LatAM. Lots of fragmented cable systems and low penetration of broadband in the region. Also you have the balance sheet of LBTYA backing LILA. The only negative is the inflation rate in the region is brutal at the moment. Management has been able to pass on this cost, but will the gov't step in with price controls? Revenue can grow rapidly, but the owners can end up poorer. If it weren't for the inflation this would be a no brainer.

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How do you guys compare the opportunities and valuation of LILA, LBTYA and other broadband stocks?

 

CHTR/LBRDA is a play on the turnaround of TWC. The story is pretty straightforward and you have the chance for vertical integration down the road. You got Malone himself saying this is a long term high teens - low twenties IRR. This appears to pan out if you assume aggressive buybacks or upside from a potential wireless offering.

 

LILA appears to be the early stages of TCI, but in LatAM. Lots of fragmented cable systems and low penetration of broadband in the region. Also you have the balance sheet of LBTYA backing LILA. The only negative is the inflation rate in the region is brutal at the moment. Management has been able to pass on this cost, but will the gov't step in with price controls? Revenue can grow rapidly, but the owners can end up poorer. If it weren't for the inflation this would be a no brainer.

 

Thank you!

Regarding LILA, what's the purpose of creating this tracking stock? Is the mere purpose to use it as an acquisition currency? How would you assign a valuation to it right now?

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Muscleman - it's the latter (Debt / EBITDA).  The other one (EBITDA / Interest) is the Interest Coverage Ratio. 

 

Keep in mind as well that it's normally calculated off of Adjusted EBITDA - which adjusts for one off items and writedowns and (often) stock based comp.

 

From S4 here, it looks like total debt is 2.6 bn for LILA.

http://www.sec.gov/Archives/edgar/data/1570585/000119312514453670/d794201ds4a.htm#rom794201_6

 

LILA's 9 month loss is 63 m. D&A 158. Interest expense 60 m. Tax benefit 24 m. So 9 month EBITDA for 2014 is 131 m. Normalized to 12 months, it will be 174 m.

 

Seems like the leverage ratio is 2600 / 174 = 14.9? That seems huge. JM said he usually targets 5x leverage, right?

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http://www.sec.gov/Archives/edgar/data/1570585/000119312514453670/d794201ds4a.htm#rom794201_8

 

Page 42.

"we generally seek to cause our operating subsidiaries to maintain their debt at levels that result in a consolidated debt balance that is between four and five times our consolidated operating cash flow."

 

So the leverage ratio is not debt/EBITDA but debt/OCF.  :)

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Q2 rebased OCF Growth of 4% in Europe

 

Liberty Global has already reached the 5x leverage ratio. The OCF growth seems low right now. If I buy, how will I expect to get a high return on this investment? Should I expect them to create synergy , cut cost, and increase OCF from there? If OCF remains low growth, I can't see how I can get a high return on this investment.

Thoughts?  :)

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There's fixed cost leverage on their revenue growth... so their cash flow should grow faster than revenues.

 

On top of that, there is leverage via debt.

 

2- They're also working on stuff that may be depressing their earnings right now, like their crappy over-the-top service MyPrime and the Horizon box (which users really, really hate).  Their 50/50 JV with discovery on content should fare a little better.

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There's fixed cost leverage on their revenue growth... so their cash flow should grow faster than revenues.

 

On top of that, there is leverage via debt.

 

2- They're also working on stuff that may be depressing their earnings right now, like their crappy over-the-top service MyPrime and the Horizon box (which users really, really hate).  Their 50/50 JV with discovery on content should fare a little better.

 

Isn't OCF growth the main driver of John Malone's cable business? They maintain 4-5x OCF as the debt level. When OCF increases, they will be able to borrow more money, and use it for acquisition, which increases OCF even more.

 

At the moment, they already have 5x leverage, and they have only 4% OCF increase, so they can't borrow anymore.

 

Thoughts?

 

Another question is:"In terms of our

repurchase activity, we bought nearly $500 million of our equity during Q2, increasing our total to over

$900 million of buybacks during the first six months of the year. As a result, we remain on track to return

$3 billion of capital to shareholders through stock repurchases over the next 18 months."

 

Why are they buying back stocks at current levels?

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Wow, I completely misread your original post... reading revenue instead of OCF.

 

There could be some short-term issues that are affecting OCF... I don't know.  Charter for example had very weak free cash flow for a while as Rutledge is currently in the process of turning it around.  Liberty should report it's revenue growth, which should be a few to several percent a year.

 

The UK Virgin acquisition was a huge, huge thing for them because Virgin wasn't very well managed.  There's probably huge potential from turning that around.

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  • 1 month later...
  • 2 weeks later...

Yesterday's non-event was exactly the thing I was hoping for to buy back into LBTYA. Has anything changed in the long-term picture since they were trading at 58? If anything, it has become clear that LBTYA will be able to keep cheapening its financing costs accelerating the flywheel.

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Yesterday's non-event was exactly the thing I was hoping for to buy back into LBTYA. Has anything changed in the long-term picture since they were trading at 58? If anything, it has become clear that LBTYA will be able to keep cheapening its financing costs accelerating the flywheel.

 

The lack of a Vodafone asset swap deal (for now, they could agree later) is certainly a negative. Vodafone probably needs it more than Liberty Global does, so at least Malone has the leverage.

 

But I don't think they need it to do well. I think what we're seeing is that this is a hedge fund favorite that gets puked out when the going gets rough and these guys blow up or have to reduce leverage.

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I agree that it's an additional positive probably not going to happen but I can't see how this would affect the operative picture negatively. To me, this is just noise.

 

There are two fundamental aspects I'm watching:

 

1. How are interest rates developing? This is a huge FCF driver for a company with such a debt load.

 

2. Is there anything on the horizon threatening the victory of cable broadband (vs all other possible data routes)?

 

I think that both aspects keep looking great for all cable cos.

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  • 4 weeks later...

 

No details on this? Are they going to use debt or LILAK stocks to buy it? LILAK stock is so cheap that using the stock may not make sense.

Or are they going to use debt and LBTYK stock to buy it, and fold it into LILA? That makes most sense as LBTYK is much higher valued in EV/EBITDA multiple than LILAK.

 

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No details on this? Are they going to use debt or LILAK stocks to buy it? LILAK stock is so cheap that using the stock may not make sense.

Or are they going to use debt and LBTYK stock to buy it, and fold it into LILA? That makes most sense as LBTYK is much higher valued in EV/EBITDA multiple than LILAK.

 

No detail because it's not happening yet.

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