LBTYA - Liberty Global

[Spekulatius]

"he listens to Fox News"

 

Don't forget that he was  a co-founder .

 

^ LOL.

 

I think Europe is just not as good of a market for cable than the US. I found the idea that overall the ARPU in Europe will converge toward the US levels intriguing, but it just doesn’t work. sometimes, that’s  just the way it is, things work different in different part of the work. Same with banking which is a good business in the US, but at terrible one in Europe, because NIM in Europe are much lower.

[vince]

"he listens to Fox News"

 

Don't forget that he was  a co-founder .

 

^ LOL.

 

I think Europe is just not as good of a market for cable than the US. I found the idea that overall the ARPU in Europe will converge toward the US levels intriguing, but it just doesn’t work. sometimes, that’s  just the way it is, things work different in different part of the work. Same with banking which is a good business in the US, but at terrible one in Europe, because NIM in Europe are much lower.

 

But yet, cable ebitda margins are higher-much higher in some cases-than in the United States.  To say Europe isnt as good a cable market, based on some recent challenges and stock price weakness, is shortsighted imo.  What good is high ARPU if you are only collecting it for the content providers? And having consumers get frustrated with the distributor in the process. 

[marazul]

I think higher margins does not equal better business in this case. Content costs in Europe are minimal but so are ARPUs. Europe in general is more competitive for various reasons including: 1)Telcos were more aggressive with fiber build outs, 2) higher density makes copper infrastructure more efficient, 3) networks in many countries are opened for third parties to use, meaning there can be many competitors using 1 network, list goes on

[vince]

By the way, did anyone catch that lbtya stock fell to roughly 5.5 times normal free cash flow after earnings release?  Thats assuming u net the cash that they are receiving(not the money that will be used to pay down debt)against the market cap.  Stock touched 22 billion and change. minus 13 billion in cash over 1.7 billion in new normal fcf.  And I can swear I heard Fries mention it in the call

[vince]

I think higher margins does not equal better business in this case. Content costs in Europe are minimal but so are ARPUs. Europe in general is more competitive for various reasons including: 1)Telcos were more aggressive with fiber build outs, 2) higher density makes copper infrastructure more efficient, 3) networks in many countries are opened for third parties to use, meaning there can be many competitors using 1 network, list goes on

 

By definition, if Europe was more competitive, it would show up in the ROIC's, better to prove your point with real numbers.  I'm not disagreeing with either of you, simply stating that margins are higher and margins are obviously crucial in ROIC's....Germany has over 60% ebitda margins.  And Saying that content costs in Europe are minimal but so are ARPU's is kind of saying exactly what I said.  I think you will find that the economics are very similar when you break it down properly instead of listing some bullets that may be true but dont affect the economics as much as you may think.

[WayWardCloud]

By the way, did anyone catch that lbtya stock fell to roughly 5.5 times normal free cash flow after earnings release?  Thats assuming u net the cash that they are receiving(not the money that will be used to pay down debt)against the market cap.  Stock touched 22 billion and change. minus 13 billion in cash over 1.7 billion in new normal fcf.  And I can swear I heard Fries mention it in the call

 

min 24': "As I just said, you know, we think at this price today right now you're valuing the rest of our stuff at 5 times, I'm a buyer."

[Spekulatius]

By the way, did anyone catch that lbtya stock fell to roughly 5.5 times normal free cash flow after earnings release?  Thats assuming u net the cash that they are receiving(not the money that will be used to pay down debt)against the market cap.  Stock touched 22 billion and change. minus 13 billion in cash over 1.7 billion in new normal fcf.  And I can swear I heard Fries mention it in the call

 

min 24': "As I just said, you know, we think at this price today right now you're valuing the rest of our stuff at 5 times, I'm a buyer."

 

I think he is referring to cash flow, not free cash flow. The more interesting question is what would the multiple of EV to EBITDA look like post merger.

 

My rough calc: 810M shares x$29.5=$23.9B market cap+$43B debt~$67B EV. EBITDA =$7.5B$ (?)

 

Post merger: EV=$67B-$22.5B~$44.5B - $OCF 7.5B -$2B=$5.5B; EV/EBITDA ~8.1x

 

Most likely, there will be some taxes and probably some loss of synergies that make the numbers worse, but overall, this looks quite cheap. I am somewhat uncertain about this years OCF, since so much depends on exchange rates, which fluctuate quite a bit.

[vince]

By the way, did anyone catch that lbtya stock fell to roughly 5.5 times normal free cash flow after earnings release?  Thats assuming u net the cash that they are receiving(not the money that will be used to pay down debt)against the market cap.  Stock touched 22 billion and change. minus 13 billion in cash over 1.7 billion in new normal fcf.  And I can swear I heard Fries mention it in the call

 

min 24': "As I just said, you know, we think at this price today right now you're valuing the rest of our stuff at 5 times, I'm a buyer."

 

I think he is referring to cash flow, not free cash flow. The more interesting question is what would the multiple of EV to EBITDA look like post merger.

 

My rough calc: 810M shares x$29.5=$23.9B market cap+$43B debt~$67B EV. EBITDA =$7.5B$ (?)

 

Post merger: EV=$67B-$22.5B~$44.5B - $OCF 7.5B -$2B=$5.5B; EV/EBITDA ~8.1x

 

Most likely, there will be some taxes and probably some loss of synergies that make the numbers worse, but overall, this looks quite cheap. I am somewhat uncertain about this years OCF, since so much depends on exchange rates, which fluctuate quite a bit.

 

I thought initially he was referring to cash flow but the number but the numbers dont add up.  And its interesting because I dont recall him ever using multiples of fcf to highlight the attractiveness of the stock.

 

Also, Ebitda is roughly 7.0 billion but that doesnt include their share of Ziggo's Ebitda which would add another 1.0 billion or so.  So if we add the normal fcf from Ziggo Ebitda (normal in this case is around 17% fcf margin that includes 20% normal capex) the stock is even cheaper

[cmlber]

I think higher margins does not equal better business in this case. Content costs in Europe are minimal but so are ARPUs. Europe in general is more competitive for various reasons including: 1)Telcos were more aggressive with fiber build outs, 2) higher density makes copper infrastructure more efficient, 3) networks in many countries are opened for third parties to use, meaning there can be many competitors using 1 network, list goes on

By definition, if Europe was more competitive, it would show up in the ROIC's, better to prove your point with real numbers.

 

Vince, what ROIC do you estimate LBTYK is earning relative to Charter or Comcast? 

 

Cable in Europe is clearly an inferior business.  VDSL speeds are much more competitive and VDSL pricing is regulated to an extent through open access. 

 

So whereas Charter competes with a shitty unregulated AT&T DSL service, LBTYK competes with a not as fast, but good enough to work without issue for most of the population, BT that is forced to wholesale its network.

[vince]

I think higher margins does not equal better business in this case. Content costs in Europe are minimal but so are ARPUs. Europe in general is more competitive for various reasons including: 1)Telcos were more aggressive with fiber build outs, 2) higher density makes copper infrastructure more efficient, 3) networks in many countries are opened for third parties to use, meaning there can be many competitors using 1 network, list goes on

By definition, if Europe was more competitive, it would show up in the ROIC's, better to prove your point with real numbers.

 

Vince, what ROIC do you estimate LBTYK is earning relative to Charter or Comcast? 

 

Cable in Europe is clearly an inferior business.  VDSL speeds are much more competitive and VDSL pricing is regulated to an extent through open access. 

 

So whereas Charter competes with a shitty unregulated AT&T DSL service, LBTYK competes with a not as fast, but good enough to work without issue for most of the population, BT that is forced to wholesale its network.

 

A quick calculation shows Lbtya around 12% and Chtr closer to 10% using Ebitda margins.  I'm sure there are adjustments to make, and Chtr is arguably underearning (part of the bull thesis is that Chtr is underpenetrated within their footprint) that could change those numbers somewhat but I think they will be very similar anyway. 

[Liberty]

https://www.barrons.com/articles/bill-gates-discloses-5-stake-in-liberty-global-1526678779

[scorpioncapital]

Global is selling the assets in areas where the governments are either not allowing or pricing is too low to provide a good return. As such , I suspect the western European assets in UK and Netherlands are going to provided more USA like returns. Unfortunately most of Europe is tied together and you have to look at country by country for the best deals. What will they do with all this cash ? Buy back shares or enter a new line of businesses?

[cameronfen]

Global is selling the assets in areas where the governments are either not allowing or pricing is too low to provide a good return. As such , I suspect the western European assets in UK and Netherlands are going to provided more USA like returns. Unfortunately most of Europe is tied together and you have to look at country by country for the best deals. What will they do with all this cash ? Buy back shares or enter a new line of businesses?

 

Maybe I'm wrong but it looks like they are selling business' where they dont have good telecom and cable businesses combined.  But its just one data point (as well as Liberty Latin America puchase of CW). 

[Spekulatius]

Why has LBTYA performed so poorly over the years? Their stock was at $20 in 2012 and has vastly underperformed indices or Us cable stocks. All the PP presentation look great LOL.

However, their organic growth was very mediocre overall, the Euro overall was weak against the USD, but they is only a small part of the story. I think the bigger issue is that they never generated the FCF that they predicted . back in h r Day of thr Virgin Media merger, they had Capex <20% of the revenues and predicted lower numbers going forward. Currently they are investing 30-35% of their revenues in Capex, so that clearly didn’t work out.

 

The deal so sell a significant amount of their business at a moderate premium to their current EV/EBITDA seems great, but what about taxes and what will they do with the proceeds. Something along the line LBTYA does not seem to work out. I would appreciate , if someone could provide some clues. I have looked at this stock many iof more over the years and ever owned it, as I have not been able to get a picture of he actual organic business performance, due to all the wheeling and dealing.

[scorpioncapital]

If you look here - http://www.libertyglobal.com/ir-lg-share-cost-basis.html

 

There have been some significant dividends and split-offs to shareholders since 2012. One dividend even gave you an entire share for each one you owned.

 

On top of that add a potential undervaluation of the shares and converting 1/3 of the business to cash in the sale to Vodafone and it may in fact be an issue of valuation, although the management is quite highly compensated.

[Liberty]

One dividend even gave you an entire share for each one you owned.

 

Isn't that a stock split?

[scorpioncapital]

Right...so if the stock price was $20 then and $20 now, and you got an extra share, I would imagine one could see it as being worth $40 to you.

 

 

[Liberty]

Right...so if the stock price was $20 then and $20 now, and you got an extra share, I would imagine one could see it as being worth $40 to you.

 

Depends if the figures that were used were split-adjusted or not was my point. They usually are. A quick look at Yahoo Finance shows that the stock indeed split in March 2014, and that the $20 price in 2012 was split adjusted.

 

Having a quick look at the past 10 years on RF, seems like between the summer of 2009 and the summer of 2015, the stock had a CAGR of 32%. Impressive. But from mid-2009 to today, the CAGR is 13%.

[cmlber]

Why has LBTYA performed so poorly over the years?

 

Virgin Media is the majority of the value at LBTYA (especially after the Vodafone deal), and most bull cases revolve around cable having pricing power.  The last year has tested that thesis for the UK.  Last year, ARPU didn't grow and volumes weren't that impressive.  They explained this by saying prior mgmt got too aggressive trying to raise prices twice in one year (reasonable argument).  But then they fixed that and still, if you look at last quarter, in order to show ARPU growth (of only ~2%), they basically didn't grow volume other than the new-build associated growth.  Now they explained this by saying the seasonality has changed because they used to take price at the same time as their competitors, but this year they took price in Q1 and competitors took price in Q2.  That sounds like a reasonable explanation to me, so Q2 will be a big test, if it's a seasonality issue, they should grow ARPU 2% and have very good volume growth.  If volume growth doesn't accelerate than you have to seriously question whether customers just don't care about the difference between 75Mbps and 300Mbps. 

 

The Swiss market has also performed much worse because Salt/Sunrise have been pricing quad plays irrationally which forced Swisscom to respond.  Compare the new Salt quad play offer to Liberty's offer.  Idk why anyone would take a Liberty product in that part of the market.  But it's only available in ~30% of the market and they Liberty will likely buy Sunrise which would remove one irrational competitor.

 

Those are the two biggest issues that come to mind.

[Liberty]

 

[WayWardCloud]

Thank you for sharing, Liberty  :)

[Liberty]

https://www.digitaltveurope.com/2018/05/29/virgin-media-buys-casey-cablevision/

[Astrea]

Michael Fries bought ~$2.8m worth of LBTYA on the open market on 30 May it would seem...

 

https://www.sec.gov/cgi-bin/own-disp?action=getowner&CIK=0001058725

 

 

 

 

[scorpioncapital]

It is usually a safe bet that when a depressed stock turns one third of its operating assets to cash and deleverages, it could be a good store of value, even giving some tailwinds to the remaining business. I sold some puts October at 22.5, it seems like a conservative return is possible with little downside risk other than owning more look thru cash even cheaper if the deal closes or just a very cheap if it doesn't.

[walkie518]

very cheap here

 

Liberty Global is buying $2B of stock this year...likely they haven't been buying recently, is this might be the blackout period?

 

After the deal closes, mgmt will use proceeds to buy more stock.  I don't see why the market doesn't appreciate the Vodafone deal?

 

Is Switzerland so much of a drag that buying 10% of the stock back means nothing?