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LBTYA - Liberty Global

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Liberty Newbie

Liberty

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The filings for repurchases via options before the CWC close were done because of UK laws, afaik. They don't normally have to do things like that.

 

I've been sick so I haven't had a chance to review the details, but I think they haven't updated the CWC synergy numbers yet with what they really think they can get above what they could include befor the deal closed under the UK takeover regulations. I think many were expecting a more complete picture at this point. But as I said, I haven't had much of a chance to look at things closely yet, so I'm not sure.

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muscleman Newbie

muscleman

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Liberty Global partners with Netflix globally.

 

"Netflix’s content being made available to Liberty Global video customers across more than 30 countries around the world."

 

http://www.businesswire.com/news/home/20160914005618/en/Liberty-Global-Lights-TV-Screens-Global-Netflix

 

NFLX isn't profitable outside US. Could this be a win-win deal? I can see that this encourages more broadband usage, and the traditional DSL providers may not be able to support NFLX.

But how do they split the cost of content and the revenue?

 

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muscleman Newbie

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Likely they don't.  I think this is probably similar to the Comcast-Netflix deal agreed earlier this year.

 

Getting Netflix on the LBTYA set-top boxes helps lock their cable customers in and adds new subscribers for NFLX.

 

NFLX is probably paying some interconnection fee for better streaming speeds.

 

http://finance.yahoo.com/news/liberty-global-offer-netflix-customers-133206775.html

 

"No financial details were disclosed, but under the deal Liberty Global will receive a share of revenues from Netflix for customers that subscribe to the service via Liberty boxes."

 

So NFLX is paying LBTYA for this. Let's think about it for a moment. Traditional cable companies usually pay billions of dollars to channels as licensing fee. But now it is the other way around? The OTT "channel" NFLX is paying LBTYA?

 

But how about the existing content that LBTYA already paid for? Will those show in NFLX to NFLX users?

 

 

Here is what I am thinking about the contents that's already paid by LBTYA. If they make it available through NFLX, but only to the Horizon box customers, then it is a win-win because the Horizon box viewers can see the content anyway. But if the content is available to NFLX for ALL NFLX customers across the globe, then it will be a lose-win for LGI.

 

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Grenville Newbie

Grenville

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Sounds like the Netflix app sits on other provider boxes in Europe, it's not an exclusive thing with Liberty Global. It definitely simplifies the experience for the user and helps Netflix.

 

http://www.wsj.com/articles/netflix-to-be-on-liberty-global-set-top-boxes-1473862028?mod=yahoo_hs&yptr=yahoo

Unlike the sometimes prickly relationship that Netflix has had with big U.S.-based cable providers, Netflix has received a much warmer welcome from countries abroad. Many providers bundle their subscriptions together with Netflix and offer it as an app through their set-top boxes. Liberty Global, however, had long held out from striking such a deal.

 

But how about the existing content that LBTYA already paid for? Will those show in NFLX to NFLX users?

The deal doesn't make LBTYA content available to NFLX users through NFLX as far as I can tell.

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muscleman Newbie

muscleman

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Sounds like the Netflix app sits on other provider boxes in Europe, it's not an exclusive thing with Liberty Global. It definitely simplifies the experience for the user and helps Netflix.

 

http://www.wsj.com/articles/netflix-to-be-on-liberty-global-set-top-boxes-1473862028?mod=yahoo_hs&yptr=yahoo

Unlike the sometimes prickly relationship that Netflix has had with big U.S.-based cable providers, Netflix has received a much warmer welcome from countries abroad. Many providers bundle their subscriptions together with Netflix and offer it as an app through their set-top boxes. Liberty Global, however, had long held out from striking such a deal.

 

But how about the existing content that LBTYA already paid for? Will those show in NFLX to NFLX users?

The deal doesn't make LBTYA content available to NFLX users through NFLX as far as I can tell.

 

Well....... I think it will be smart for LBTYA to make its own content available in NFLX, but only to the existing LBTYA customers. In this way, they are not losing anything, but only makes it more convenient for its own customers.

 

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Liberty Newbie

Liberty

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LBTYA & LILA Q3:

 

http://www.libertyglobal.com/pdf/press-release/LG-Earnings-Release-Q3-16-FINAL.pdf

 

Liberty Global Reports Q3 and YTD 2016 Results

 

Subscriber Additions Up 35% YTD, including 284,000 RGUs in Q3

 

Operating Income up 60% YoY in Europe and 108% for LiLAC in Q3

 

Rebased OCF Growth >5% in Q3 for both Europe (ex Ziggo) & LiLAC

 

Additional LiLAC/CWC Synergies of $150 Million by Year End 2020

 

Repurchased ~$640 Million of Equity in Q3, Totaling $1.6 Billion YTD

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dwy000 Newbie

dwy000

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LBTYA & LILA Q3:

 

http://www.libertyglobal.com/pdf/press-release/LG-Earnings-Release-Q3-16-FINAL.pdf

 

Liberty Global Reports Q3 and YTD 2016 Results

 

Subscriber Additions Up 35% YTD, including 284,000 RGUs in Q3

 

Operating Income up 60% YoY in Europe and 108% for LiLAC in Q3

 

Rebased OCF Growth >5% in Q3 for both Europe (ex Ziggo) & LiLAC

 

Additional LiLAC/CWC Synergies of $150 Million by Year End 2020

 

Repurchased ~$640 Million of Equity in Q3, Totaling $1.6 Billion YTD

 

 

There's obviously some pretty good traction and I like the stock buyback given how low the price is.  But I'm struggling with how they will hit their 3 year target of 7-9% annualized OCF growth when they are trending closer to 5% right now.  I'm not sure the back end can make up for that shortfall.  And importantly, they've now removed Ziggo (which was the declining asset) from the base number so there should have been a pickup just from removing that.

 

On the flip side, they will be getting over $2.3bn in cash out of Ziggo partnership once it closes.

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scorpioncapital Newbie

scorpioncapital

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There's a decent writeup on LBTYK in valueinvestorsclub from August I think. They say that in Europe prices are much lower, like a triple play costs 30 to 40 euro vs at least twice that in the US. That might be part of the margin growth issue. The other issue is of course the price of acquisitions and sensitivity to debt.

 

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marazul Newbie

marazul

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Name has underperformed for a while now. Decline in stock price makes sense for several reasons including:

-GBP & EUR decline

-Increased competition

-CWC acquisition at high price

-Ziggo difficulties

 

However, IMHO the stock has discounted these issues and might be interesting here (this is a high risk investment given the level of financial leverage, management aggresiveness and changing environment).

 

-After the Ziggo-Vodafone transaction (which has been approved), LGI will receive ~$2.8bn which I think will be used mostly for repurchases (roughly 10% of current market cap).

-In 2017, LGI will generate at least $1.5bn in free cash flow. This is conservative, but we have to take into consideration that they are going through a high capex period given project lighting, etc. This FCF might be used to buyback shares as well.

-Management has guided to 7-9% EBITDA growth. This might be too aggressive but at this prices, the stock works with 4-5% EBITDA growth. In a scenario in which they figure the plant expansion isn´t producing the required returns, they can cut on capex to maybe 18% of revenues. In that steady state, I think they would be able to generate $2.5-3.0bn in FCF and grow EBITDA 3-4%. That gives you a 10% FCF yield growing at low single digits which is attractive (albeit with high financial leverage)

-Finally, for a strategic like Vodafone, Orange or even a US operator this thing might be worth 10.5-11.0x EBITDA. That is a 2x from current prices.

 

So this is a complicated and risky stock, but might be attractive to some people here.

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muscleman Newbie

muscleman

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Name has underperformed for a while now. Decline in stock price makes sense for several reasons including:

-GBP & EUR decline

-Increased competition

-CWC acquisition at high price

-Ziggo difficulties

 

However, IMHO the stock has discounted these issues and might be interesting here (this is a high risk investment given the level of financial leverage, management aggresiveness and changing environment).

 

-After the Ziggo-Vodafone transaction (which has been approved), LGI will receive ~$2.8bn which I think will be used mostly for repurchases (roughly 10% of current market cap).

-In 2017, LGI will generate at least $1.5bn in free cash flow. This is conservative, but we have to take into consideration that they are going through a high capex period given project lighting, etc. This FCF might be used to buyback shares as well.

-Management has guided to 7-9% EBITDA growth. This might be too aggressive but at this prices, the stock works with 4-5% EBITDA growth. In a scenario in which they figure the plant expansion isn´t producing the required returns, they can cut on capex to maybe 18% of revenues. In that steady state, I think they would be able to generate $2.5-3.0bn in FCF and grow EBITDA 3-4%. That gives you a 10% FCF yield growing at low single digits which is attractive (albeit with high financial leverage)

-Finally, for a strategic like Vodafone, Orange or even a US operator this thing might be worth 10.5-11.0x EBITDA. That is a 2x from current prices.

 

So this is a complicated and risky stock, but might be attractive to some people here.

 

9x EV/EBITDA isn't cheap. I'd rather buy Ferrari at 11x EV/EBITDA. They have much stronger growth and much less competition. How about CHTR? Similar multiple. Much stronger growth.  :(

 

I made a serious mistake buying into this by taking the valuation articles at face value. I usually compare different opportunities and found some to be obviously less attractive but I failed to do that here. I guess my discipline wasn't strong.

 

 

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scorpioncapital Newbie

scorpioncapital

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"-In 2017, LGI will generate at least $1.5bn in free cash flow. This is conservative, but we have to take into consideration that they are going through a high capex period given project lighting, etc. This FCF might be used to buyback shares as well."

 

Ebay generates $2b in FCF has about the same market cap and is asset-light. Now one should compare it during a recession, where cable/internet might beat out e-commerce, but since recession is 1/3 of the time and normal operating parameters is 2/3 of the time, it's interesting to see what else is out there that has similar valuations.

 

 

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scorpioncapital Newbie

scorpioncapital

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Marazul, excellent point! I've always wondered about cable companies in every country, USA, Canada, Europe, LATAM. Do you know historically if capex is something that 'sometimes' normalizes lower or is it like the airline industry where you keep hoping it will end but then a new wave of new developments force you to keep spending. This would make a big difference in valuation if they can get the capex down. Is price-competition due to cord cutting going to lead to lower capex that far exceeds the decrease in subscriber revenue, which would be a big positive for FCF?

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marazul Newbie

marazul

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This is my opinion and might be wrong.

 

-If you look at Comcast, which is a large and maybe called "mature" operator, current capex intensity is 14% of revenues and 35% of EBITDA. Capex as % of EBITDA is a better comparison once we compare US operators vs LBTY given content costs are way higher in the US, thus ARPUs are higher. So let´s say LBTY gets to capex of 35%/EBITDA that would give us a FCF number slightly over $3.0bn using current cash flow.

 

-In terms of historic figures for LBTY, they were close to these levels of capex intensity back in 2011-2012. Currently, they have a huge project to increase # of passings in UK and Germany. This is what is moving capex intensity higher. Thye are also offering new STBs as a way to improve their video offering. These are the two drivers for the high capex levels. I think the first one is just a temporal thing given the economics of new builds (targeting 30% unlevered IRR, which might be lower given competition). The STB issue is complicated. As technologies evolve they might be require to imporve their equipments on a recurring basis. However, they are trying to implement a cloud based offering in which they can make changes remotely. This would be huge for cable operators. This would reduce capex significantly and service visits. If the industry is succesful with this rollout, then FCF will be much higher.

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