LBTYA - Liberty Global

[scorpioncapital]

What if the deal is not approved by German regulators? Are they stuck with the asset without a buyer ever?

 

[walkie518]

What if the deal is not approved by German regulators? Are they stuck with the asset without a buyer ever?

 

That is certainly possible but I would think that if LBTY broke up the sale into different pieces, they could do sell to different buyers? 

 

From what I understand, nearly every country functions like its own region.  For this reason, there has been less leverage in Swiss assets despite proximity to other assets. 

[Liberty]

LBTYA is trading at levels last seen in 2012... Anybody left to capitulate?

[Jurgis]

LBTYA is trading at levels last seen in 2012... Anybody left to capitulate?

 

Me.  8)

[walkie518]

digging deeper might be best move over time?

 

an analyst came out saying the stock should trade at $26/sh because the UK revenues will no longer grow

 

It's very possible that revenues do not continue to grow after the Vodafone deal, but from here, the company's free cash flow should increase relative to revenues since most if not all of the pieces are in place

 

Liberty is also buying an Irish cable co, which is subscale to its current operations

 

That said, I've seen managers dig into the stock when it's cheap to see if fall another 20%...

 

 

[HalfMeasure]

Given the asset sale, how are you guys looking at LBTYA?

[walkie518]

Bird's eye view: Liberty is selling 20% of its revenues (including the VodafoneZiggo JV) for net proceeds greater than 50% of its market cap.  Liberty is also keeping all cash flow from these businesses until closing...

 

The deal doesn't close for another year and since many investors have troubling thinking a few months ahead, a year might be an eternity. 

 

Lumping together in the Austria DT deal with the Vodafone one might be helpful for quick figures to see what's going

 

Liberty is selling a group of businesses that have grown sales from $3.36B in 2015 to $3.79B in 2017, or 4% sales growth per year on average. 

 

As a whole, Liberty has grown sales by only 2% per year (averaging 3 years and subtracting Netherlands)...clearly, the businesses being sold were a large part of the firms greater revenue growth.

 

The UK/Ireland business might be somewhat misunderstood, though rear-view mirror shows declining profitability and lower sales.  Belgium, on the other hand, has done very well.  Switzerland is subscale and possibly more of a problem maybe they figure it out or do a deal. 

 

Yes, as the analyst argues, sales are likely to decline. 

 

Taking this view is not constructive nor does it hold water because it doesn't take into account the broader context. 

 

Net proceeds from the Vodafone sale are expected to be roughly net proceeds of $12.7B USD (not including Austria). 

 

Austria is a TEV $2.2B deal.  I can't seem to find what net proceeds look like for this deal, but considering how little Austria contributes to the bottom-line, my guess is that piece of the business does not have cash flows that provide great coverage; that said, 10K seems to only show UPC debt w/o Austria broken out?  Does anyone have an actual number?

 

On the last call, Fries has indicated that should the stock be where it is today at closing, "every penny" will go to buybacks. 

 

At the end of Q1, Liberty bought back $480m of shares.  We'll see what the next Q looks like, but it's likely that the buyback was a similar figure since this year, the board has approved $2B of buyback. 

 

After Austria closes (this year), it would only make sense for Liberty to increase the buyback this year to match last year's? 

 

At $27/sh, Liberty Global trades at a $21.5B market cap...before the $12.7B of net proceeds (a large piece of which will likely be used for buyback should the stock remain depressed), Liberty will buy back roughly 8% of its market cap AND be earning money...

[vince]

digging deeper might be best move over time?

 

an analyst came out saying the stock should trade at $26/sh because the UK revenues will no longer grow

 

It's very possible that revenues do not continue to grow after the Vodafone deal, but from here, the company's free cash flow should increase relative to revenues since most if not all of the pieces are in place

 

Liberty is also buying an Irish cable co, which is subscale to its current operations

 

That said, I've seen managers dig into the stock when it's cheap to see if fall another 20%...

pray to god it falls another 20 percent and stays there

[Spekulatius]

Last quarter results were crappy. Again, lack of FCF, slow growth, more share buybacks. Hovering around 5x EBITDA debt, which is high, given the lack of FCF. Why invest in LBTYA when you can buy CHTR for a similar valuation and CMCSA even cheaper?

[scorpioncapital]

Would one be wrong in thinking that European regulators have resulted in higher percentage of capital spending and lower potential or cap on consumer broadband costs ? After this sale , global is mostly UK and a few western European small countries and poland.

I'm also seeing Gates investment vehicle cascade owns 5 percent of this. I think it's like a piggyback. It is unlikely to go much lower but it also may not go up dramatically either until more time passed , new deals or buybacks materialize.

[thefatbaboon]

The whole Global thesis revolves on how you interpret the capex in the UK.  They are spending all their cash flow building out there, adding 4%-5% households for the last few years and intend to do so for the next 5. Meanwhile they are getting negligible arpu growth and homes past are only 38% penetrated...and what they do manage to build out doesnt immediately add that much to rgu growth as it takes time to ramp marketing and wait for the involuntary churn to favor the gravity of a superior product. 

 

I feel the jury is still out, there is no damning evidence in the numbers that disprove the liberty management thesis. In 5 years time  Project lightening might have increased homes passed 30% to 17m homes, gotten speeds up to 1GB, all at a time when 5G and IOT and AR/VR makes the dense network and high speeds very desirable to consumers allowing penetration to climb toward 45%-50%.  That could easily mean 60% RGU growth compared to today with capex needs collapsing, and thats without without any arpu/pricing. Thats a lot of fcf.

 

Its worth noting though for dollar investors that global will be almost totally exposed to sterling.

[vince]

Last quarter results were crappy. Again, lack of FCF, slow growth, more share buybacks. Hovering around 5x EBITDA debt, which is high, given the lack of FCF. Why invest in LBTYA when you can buy CHTR for a similar valuation and CMCSA even cheaper?

 

Spek, can you please show how lbtya is more expensive(pro forma for asset sales) than chtr or cmcsa?

[cameronfen]

Last quarter results were crappy. Again, lack of FCF, slow growth, more share buybacks. Hovering around 5x EBITDA debt, which is high, given the lack of FCF. Why invest in LBTYA when you can buy CHTR for a similar valuation and CMCSA even cheaper?

 

Spek, can you please show how lbtya is more expensive(pro forma for asset sales) than chtr or cmcsa?

 

I can't speak for spek but cmcsa is trading at something like 8x EV EBITDA which is cheaper than the 10x for CHTR and LBTYA.  The benefit of owning charter is that earnings are set to increase a lot as they integrate there acquisitions (and also pivot away from video). 

[Spekulatius]

Last quarter results were crappy. Again, lack of FCF, slow growth, more share buybacks. Hovering around 5x EBITDA debt, which is high, given the lack of FCF. Why invest in LBTYA when you can buy CHTR for a similar valuation and CMCSA even cheaper?

 

Spek, can you please show how lbtya is more expensive(pro forma for asset sales) than chtr or cmcsa?

 

Yes, that’s how I see it. CMCSA (albeit not totally comparable) is cheaper than LBTYA and CHTR’s valuation is about the same, yet  CHTR has better organic growth and more importantly much lower Capex and higher FCF for the next few years probably.

 

Europe has more competition from the telecom operators, which brings returns down, IMO.

 

I can't speak for spek but cmcsa is trading at something like 8x EV EBITDA which is cheaper than the 10x for CHTR and LBTYA.  The benefit of owning charter is that earnings are set to increase a lot as they integrate there acquisitions (and also pivot away from video).

[cmlber]

Last quarter results were crappy. Again, lack of FCF, slow growth, more share buybacks. Hovering around 5x EBITDA debt, which is high, given the lack of FCF. Why invest in LBTYA when you can buy CHTR for a similar valuation and CMCSA even cheaper?

 

Spek, can you please show how lbtya is more expensive(pro forma for asset sales) than chtr or cmcsa?

 

Yes, that’s how I see it. CMCSA (albeit not totally comparable) is cheaper than LBTYA and CHTR’s valuation is about the same, yet  CHTR has better organic growth and more importantly much lower Capex and higher FCF for the next few years probably.

 

Europe has more competition from the telecom operators, which brings returns down, IMO.

 

I can't speak for spek but cmcsa is trading at something like 8x EV EBITDA which is cheaper than the 10x for CHTR and LBTYA.  The benefit of owning charter is that earnings are set to increase a lot as they integrate there acquisitions (and also pivot away from video).

 

LBTYA is not trading at 10x EBITDA.  Not sure what numbers you're looking at, but you may be ignoring the look-through EBITDA of the Netherlands JV and not valuing the public equity stakes.  It's <8x EV/EBITDA on an aggregate basis, but they are selling 1/4 of the business at 11x, so the leftover (Virgin Media) is much cheaper. They only have 37% broadband penetration in the UK (compare to CHTR/CMCSA at 45-50%) and price points are lower than BT for substantially faster speeds.  And they don't have to defend the video contribution from OTT.

 

Another way to look at it is you're paying $20.5Bn for the equity today.  They have $1.2Bn left on the buyback + $12.2Bn that can be used to buyback stock if/when the Germany deal closes.  They also own a stake in Telenet which is publicly traded.

 

So you can think of it as getting the equity in UPC Switzerland ($1Bn OCF) for free and 50% of Vodafone/Ziggo (distributing $400MM/year) for free and paying $3.5Bn for the equity in Virgin Media, or a ~$20Bn EV for Virgin Media, which was purchased 5 years ago for a $23.3Bn EV.  Even adjusted for the depreciation of the pound OCF at Virgin is 10% higher since then, the footprint has expanded, and the speed is more important for consumers.

 

[vince]

Last quarter results were crappy. Again, lack of FCF, slow growth, more share buybacks. Hovering around 5x EBITDA debt, which is high, given the lack of FCF. Why invest in LBTYA when you can buy CHTR for a similar valuation and CMCSA even cheaper?

 

Spek, can you please show how lbtya is more expensive(pro forma for asset sales) than chtr or cmcsa?

 

Also, on a fcf basis, lbtya is significantly cheaper than chtr and cmcsa pro forma the asset sale

 

Yes, that’s how I see it. CMCSA (albeit not totally comparable) is cheaper than LBTYA and CHTR’s valuation is about the same, yet  CHTR has better organic growth and more importantly much lower Capex and higher FCF for the next few years probably.

 

Europe has more competition from the telecom operators, which brings returns down, IMO.

 

I can't speak for spek but cmcsa is trading at something like 8x EV EBITDA which is cheaper than the 10x for CHTR and LBTYA.  The benefit of owning charter is that earnings are set to increase a lot as they integrate there acquisitions (and also pivot away from video).

 

LBTYA is not trading at 10x EBITDA.  Not sure what numbers you're looking at, but you may be ignoring the look-through EBITDA of the Netherlands JV and not valuing the public equity stakes.  It's <8x EV/EBITDA on an aggregate basis, but they are selling 1/4 of the business at 11x, so the leftover (Virgin Media) is much cheaper. They only have 37% broadband penetration in the UK (compare to CHTR/CMCSA at 45-50%) and price points are lower than BT for substantially faster speeds.  And they don't have to defend the video contribution from OTT.

 

Another way to look at it is you're paying $20.5Bn for the equity today.  They have $1.2Bn left on the buyback + $12.2Bn that can be used to buyback stock if/when the Germany deal closes.  They also own a stake in Telenet which is publicly traded.

 

So you can think of it as getting the equity in UPC Switzerland ($1Bn OCF) for free and 50% of Vodafone/Ziggo (distributing $400MM/year) for free and paying $3.5Bn for the equity in Virgin Media, or a ~$20Bn EV for Virgin Media, which was purchased 5 years ago for a $23.3Bn EV.  Even adjusted for the depreciation of the pound OCF at Virgin is 10% higher since then, the footprint has expanded, and the speed is more important for consumers.

[vince]

Last quarter results were crappy. Again, lack of FCF, slow growth, more share buybacks. Hovering around 5x EBITDA debt, which is high, given the lack of FCF. Why invest in LBTYA when you can buy CHTR for a similar valuation and CMCSA even cheaper?

 

Spek, can you please show how lbtya is more expensive(pro forma for asset sales) than chtr or cmcsa?

 

Also, on a fcf basis, lbtya is significantly cheaper than chtr and cmcsa pro forma the asset sale

 

Yes, that’s how I see it. CMCSA (albeit not totally comparable) is cheaper than LBTYA and CHTR’s valuation is about the same, yet  CHTR has better organic growth and more importantly much lower Capex and higher FCF for the next few years probably.

 

Europe has more competition from the telecom operators, which brings returns down, IMO.

 

I can't speak for spek but cmcsa is trading at something like 8x EV EBITDA which is cheaper than the 10x for CHTR and LBTYA.  The benefit of owning charter is that earnings are set to increase a lot as they integrate there acquisitions (and also pivot away from video).

 

LBTYA is not trading at 10x EBITDA.  Not sure what numbers you're looking at, but you may be ignoring the look-through EBITDA of the Netherlands JV and not valuing the public equity stakes.  It's <8x EV/EBITDA on an aggregate basis, but they are selling 1/4 of the business at 11x, so the leftover (Virgin Media) is much cheaper. They only have 37% broadband penetration in the UK (compare to CHTR/CMCSA at 45-50%) and price points are lower than BT for substantially faster speeds.  And they don't have to defend the video contribution from OTT.

 

Another way to look at it is you're paying $20.5Bn for the equity today.  They have $1.2Bn left on the buyback + $12.2Bn that can be used to buyback stock if/when the Germany deal closes.  They also own a stake in Telenet which is publicly traded.

 

So you can think of it as getting the equity in UPC Switzerland ($1Bn OCF) for free and 50% of Vodafone/Ziggo (distributing $400MM/year) for free and paying $3.5Bn for the equity in Virgin Media, or a ~$20Bn EV for Virgin Media, which was purchased 5 years ago for a $23.3Bn EV.  Even adjusted for the depreciation of the pound OCF at Virgin is 10% higher since then, the footprint has expanded, and the speed is more important for consumers.

Also, on a fcf basis, and pro forma for asset sale, lbtya is significantly cheaper than chtr and cmcsa.  As a result, their buybacks are more accretive to the remaining shareholders.  Finally, they are more aggressive with the buyback.  So basically, if they do get a chance to use much of the proceeds at these low prices it wont even be close on a fcf basis.  I realize that there are a couple "if's" in there but that is my answer to your question as to why they are potentially a more attractive investment.

[walkie518]

anyone have a sense as to the drop today other than general market pressures? seems like a big drop considering? maybe time to buy more?

[mwtorock]

i am reading a IB upgrade note that says Virgin Media is seeing steady market share gains, rising ARPU and low churn. Anyone from UK or EU can comment about that?

 

it is not that obvious from recent market survey data i read, so i am not sure which one is right...

[walkie518]

i am reading a IB upgrade note that says Virgin Media is seeing steady market share gains, rising ARPU and low churn. Anyone from UK or EU can comment about that?

 

it is not that obvious from recent market survey data i read, so i am not sure which one is right...

what does survey data suggest?

[mwtorock]

BT market share increases with Virgin basically flat and Sky and TalkTalk shrinking. also the ARPU of Virgin customers around 40 pounds per month, which is quite different than 51 pounds Virgin Media reports. it might be skewed by cable only subscribers.

[vince]

This is Mike Fries on most recent presentation.  He seems to be very conservative when doing the sum of the parts analysis to the point of error.  For instance he says that Telenet and Ziggo would fetch 8 dollars a share or roughly 6 billion which sounds awfully low considering the market cap of telenet and any which way u want to look at Ziggo.  Even the cash per share is a little low by my calculations and his adding up of all the pieces is more than stock price.  I don't get it.                                                                                                                                                           

  "We think we've been pretty good capital allocators over the years. If I look at the M&A side, this is where I get a bit frustrated, if I look at a place like Germany, where we got over 6x our money on that investment. If I look at Telenet, pretty popular stock these days, $50 -- EUR 50 stock. Our basis in that is negative 2. We put about 20 in. We're taking 22 out in dividends. So Switzerland and the U.K. have been great investments for us. My point being I think we're pretty good allocators of capital. Now having said that, if we're trading where we're trading today -- and the way I look at the math, we traded about 5.5x, because you've got $14, $15 of cash, you got these other assets in Telenet in Holland, let's say, that might add up to say, $8, something like that, which means Virgin and all the other EBITDA trades at about $6 and that's about, in our book, about 5.5x. We're probably going to lean into our stock at that point because I don't know that we're going to find a better deal than the one sitting in front of us, especially as we start to improve free cash flow and operating free cash flow combined and we look at returns on that basis".

 

Anyone share my confusion or have anything to add? Or maybe someone agrees with his math? 

[bigbluffzinc]

Can't comment on all of it, but last I checked I think annualized results at Ziggo/Vod to Liberty would be around $985m of OIBDA....  Maybe I'm wrong (someone check?) but if not on this part I agree that the SOTP seems too conservative here...  Don't think it's likely this asset goes for anything close to what's implied there...

 

Edit* I checked pretty sure that's right...  So ~$5b leverage ~$5b to the equity is how I'd think about it....  57.4% of Telenet for ~$1b is wrong...  So yeah don't see how that works unless the multiple is way tighter than I would expect for Zig/Vod or I've missed something...

[AJDelphi]

vince

 

Yea your math seems on to me. Telnet trades at about 6.8x EV/EBITDA now. They probably wouldn't sell it for less than 10x given the recent transactions.

 

At 10x for Telenet

That's about $8.50 per share Liberty value.

 

Ziggo's EBITDA is like $30 Mil more (adjusting for Liberty's 57% of EBITDA at Telenet, and 50% from Ziggo) at $985 million like bigbluffzinc said. So probably another $8.50 there.

 

$13.7 billion of cash for $17.73 per share.

 

That get's me to $34.73 per share. And now we have $4.1 billlion of EBITDA on $25.974 billion of Debt to work with for Virgin, continuing CEE, and Switzerland.

 

With the stock at $27 hopefully they are aggressive in they buyback like Fries is hinting at.

 

 

[bigbluffzinc]

I thought it was understated (Ziggo + Telenet value) on the call by 50% too but it just seemed like such a big mistake that I thought I was wrong...