LBTYA - Liberty Global

[vince]

Hello - are any shareholders on here that are long Liberty Global be willing to post a very brief summation of their thesis? I think I am interested in this company and would love to know from a very high perspective the thesis of other shareholders? Thank you!

 

Probably a good idea to read some earlier posts and then maybe ask more specific questions.

[NBL0303]

 

Probably a good idea to read some earlier posts and then maybe ask more specific questions.

 

After reading everything, I cannot possibly understand what value anyone sees in this :)

[vince]

 

Probably a good idea to read some earlier posts and then maybe ask more specific questions.

 

After reading everything, I cannot possibly understand what value anyone sees in this :)

 

Lol, thats why they call it a market....take a look at the sum of the parts slide in their quarterly presentation, there was a good one a couple quarters ago.

[scorpioncapital]

From cable.co.uk

 

"Broadband speed

With the introduction of the Advertising Standards Authority ruling, broadband providers can now only advertise speeds that are available to at least 50 per cent of their customers, and as a result, some different, considerably lower, numbers have appeared. BT now offers 10Mbps with its standard Broadband, 36Mbps with its Superfast Fibre Essential, 50Mbps with its Superfast Fibre (previously known as BT Infinity 1) and 67Mbps for Superfast Fibre 2 (previously BT Infinity 2).

 

In comparison, where Virgin's speeds were previously way faster than those of BT, they are now even faster. This is because, for 50 per cent of Virgin's customers, the speeds they receive are actually faster than those advertised. Virgin is able to offer these speeds because it has its own cabling network, rather than relying on Openreach. This lets it set its own speed targets. You can get 50Mbps, 100Mbps, 200Mbps and even 350Mbps with Virgin Media, setting it miles apart from all other broadband providers in terms of speed.

 

Conclusion

You can’t beat Virgin when it comes to speed. That isn’t to say 10Mbps or even 36Mbps isn’t enough. Both are fine for everyday use and you will only really need 100Mbps or more when you are making big demands on the network such as if several people are streaming content at the same time or if you want to get that new Xbox game downloaded in double-quick time.

 

Virgin gets the points on this one as its basic speed of up to 50Mbps is still faster than anyone else's entry-level speed. "

 

Averages are important. It's like Income inequality...who has the highest speed for the most number of subscribers. I think virgin may be like 90 percent not even 50 percent +

 

Bottom line, they have the better network. This has huge economic value as it's available now.

One can ask do we need these speeds? Well if we don't 5g is useless from day 1. I suspect we do or will want these speeds.

Virgin has them today, not tomorrow.

There is even a path to 10G with docsis 4.0

Can fibre and 5g get to 5 to 10G fast enough at economic rates?

True you have a dumb competitor in BT. Profit seems to be a side show..not sure If this is government mandated or regulated (after all it's a private company with a profit motive).

What happens if bt goes in a loss position to build more?

Will anybody care besides shareholders being in a state of pain?

So the main weakness I see in UK is one semi national and dumb competitor in openreach.

Aside from this , and with the conservative win, the quality of this

market is economically between USA and eu/Canada/Australia (the latter screwed up nationalizing broadband with huge problems)

 

There are several equity investments inside global which have I think value.

 

My guesstimate is global is worth at least 30 a share, maybe more..I believe as of 2020 it will trade at 14 percent free cash flow yield. For such a atable asset and leverage is not excessive , with 7.5billion in offsetting cash , I would rather own this then real estate or energy utilities , equities (although I own all 3)

 

 

 

[Astrea]

I think Openreach targets a 15% return on their new fibre build. In a business briefing on 4 December 2019 (available on replay for those interested on the BT IR site), that's what they said was an allowable return under government policy. I don't think that will change now that the Corbyn threat has been neutralised.

[Spekulatius]

I think Openreach targets a 15% return on their new fibre build. In a business briefing on 4 December 2019 (available on replay for those interested on the BT IR site), that's what they said was an allowable return under government policy. I don't think that will change now that the Corbyn threat has been neutralised.

 

The biggest competition for Liberty isn’t BT, it’s probably Sky, now owned by Comcast. They are using a hybrid network (self build and last leg from BT). This approach works well where the government mandated that the incumbent has to rent out their network to competitors. Sky is now starting the same thing in Italy (presumable using Telecom Italia’s network for the last mile. I can see Comcast eventually making a bid for some Liberty subs. They clearly have ambitions in Europe.

[ander]

Any guesses what they do with UPC Switzerland now?

 

DENVER, Colorado--(BUSINESS WIRE)-- Liberty Global plc(LBTYA) (“Liberty Global” or the “Company”) announced that it has terminated discussions regarding the combination of UPC Switzerland and Sunrise Communications.

 

“We wish Sunrise well but we are moving on. Despite our willingness to show significant flexibility on terms, it’s clear to us that the Sunrise Board of Directors and their largest shareholder cannot agree amongst themselves on the best path forward,” said Mike Fries, CEO of Liberty Global(LBTYA). “As we close that door, we are excited by the success of UPC Switzerland’s turnaround plan and free cash flow generation, and we will obviously consider other strategic options in the marketplace. We’ve seen in The Netherlands, Belgium and elsewhere around the world, that the industrial logic of fixed-mobile convergence is indisputable. UPC Switzerland is the fulcrum asset in the Swiss telecom market, with a nationwide 1 Gigabit network, the best entertainment platform and a growing fixed-mobile subscriber base.”

 

Liberty Global (LBTYA) and Sunrise announced a binding agreement on February 27, 2019 and the combination received unconditional regulatory approval in September. However, in October, Sunrise cancelled its extraordinary general meeting (EGM), with approval from Liberty Global(LBTYA), due to a dispute with its largest shareholder and the Share Purchase Agreement providing for the transaction was terminated in November. After payment to Liberty Global(LBTYA) of a CHF 50 million break fee, negotiations continued up until this announcement.

 

[scorpioncapital]

Didn't know sky had it's own network. Anyone think 3 major competitors in a 60m country is a good size ?

 

If bt is going to get 15 percent it's better than most REITs. I find it interesting government would allow such a high real return in an almost utility sector and given government push for broadband development. Still their stock price speaks more than theory I guess. Will be interesting to see if they achieve it.

 

Excellent article https://www.google.com/amp/s/amp.ft.com/content/874aa854-ff3c-11e9-b7bc-f3fa4e77dd47

 

At least we can say liberty was first to see the writing on the retrenchment wall.

[WayWardCloud]

https://finance.yahoo.com/news/sunrises-ceo-swantee-chairman-kurer-070908079.html

 

Sounds like Sunrise is now firmly under German control and probably not up to discuss any other type of deal with UPC. They're calling UPC's coax network "inferior technology" and list the "attractive dividend" first when praising the qualities of their company.

 

Maybe Xavier Niel's Salt will be interested in a tie-up, one way or another (acquiring, being acquired, merging as equals), Although UPC decoupled from them as an MVNO 2 years ago choosing to go with Swisscom instead. After all, he's pioneered FMC by launching Free Mobile in France 8 years ago!

[scorpioncapital]

I'm almost sure freenet and the failed deal is a symptom of low negative Interest rates. I believe I read that freenet borrowed money at low rates to buy their sunrise stake and now collects an arbitrage on the higher dividend. Basically like free money. There is no incentive to rock the boat or get adventurous, to grow earnings or anything other than this zombie Corp behavior of borrow at near 0 and pocket a positive spread on the div. Alot is skewed  by the CB adventures, to liberty's detriment I guess.

[scorpioncapital]

https://www.ispreview.co.uk/index.php/2020/01/ofcom-start-major-review-to-boost-uk-full-fibre-broadband-market.html

 

Anyone have a view of these regulatory changes in the UK are positive, negative or neutral for virgin ? It seems higher speeds may be deregulated but there are still some caps on copper.

[Spekulatius]

https://www.ispreview.co.uk/index.php/2020/01/ofcom-start-major-review-to-boost-uk-full-fibre-broadband-market.html

 

Anyone have a view of these regulatory changes in the UK are positive, negative or neutral for virgin ? It seems higher speeds may be deregulated but there are still some caps on copper.

 

Seems positive on a first look. Lower speed capped to inflation, higher speed pricing unregulated, certainty for 5 years rather than 3 years.

[scorpioncapital]

So far it seems the market does not like anything about virgin network / liberty competitive dynamics. Sometimes I think eu / uk / canada / Australia have regulated the profit out of the industry to a level the USA has not (just look at performance of lbrdk vs lbtyk). Not sure if this industry is even as good as a public utility. At least in that case you tend to have a single power supplier not 2 or 3.

[NotSoWise]

This looks like a flattish story, so people may not want to wait few years when it reaches its intrinsic value via buybacks (if ever...) to get 30-40% return over 3-7 years. Unfortunately I have it since 4 years at -35%, but will wait till Feb 13 and then decide what to do with it. Mike should give some light on buybacks going forward.

I am from CEE and my intelligent(?) guess is that they will try to sell Polish operations in 2020 (nice fit to T Mobile). I dont have a strong view re other subsidiaries, but would tend to think they also may try to sell (if its possibe - which I dont know)

 

[scorpioncapital]

Does anyone know if full fiber to the premises (fttp) will cause hybrid coaxial (fttc) to be obsolete? Virgin has mostly fiber to the cabinet. My thinking is that final result is what matters not method. If both are delivering 1gbps does it matter how it's accomplished? On the other hand I see a global trend to full fiber and wondering if hybrid older systems like virgin's will be obsolete and requiring lots of capex to upgrade to full fiber.

 

Btw Interesting article https://www.measuringthemoat.com/post/liberty-global-video-kills-the-radio

 

 

[Mungerish]

I am getting the feeling the they are going to try and Charterize LBTYA. Let some subs roll off and focus on free cash flow and data thru fiber and your CAPEX drops due to few set atop box investments, etc. CHTR is a US only story, so slightly different, but the CFO of LBTYA mentioned that same idea at a MS conference and Malone has been highlighting that thesis in these transcripts

 

https://www.cnbc.com/2019/11/21/cnbc-exclusive-cnbc-transcripts-cnbcs-david-fabers-interviews-from-liberty-media-investor-day-today.html

 

https://www.cnbc.com/2018/11/14/cnbc-exclusive-cnbc-excerpts-liberty-media-chairman-john-malone-speaks-with-cnbcs-david-faber-today.html

[Spekulatius]

I am getting the feeling the they are going to try and Charterize LBTYA. Let some subs roll off and focus on free cash flow and data thru fiber and your CAPEX drops due to few set atop box investments, etc. CHTR is a US only story, so slightly different, but the CFO of LBTYA mentioned that same idea at a MS conference and Malone has been highlighting that thesis in these transcripts

 

https://www.cnbc.com/2019/11/21/cnbc-exclusive-cnbc-transcripts-cnbcs-david-fabers-interviews-from-liberty-media-investor-day-today.html

 

https://www.cnbc.com/2018/11/14/cnbc-exclusive-cnbc-excerpts-liberty-media-chairman-john-malone-speaks-with-cnbcs-david-faber-today.html

 

Capex is 22% of the revenues now for LBTYA - if they can get it to ~12% like CMCSA or CHTR, this company will be gushing astonishing amounts of cash.

[Mungerish]

From the MS conference in Nov 19 RE CAPEX:

Charles H. R. Bracken

Executive VP & CFO

 

So if you look at 2018, we spent about $1.06 billion of OpEx and CapEx at the center, which sounds like, wow, that's a big number. And I would split that into 2 numbers. We spent $800 million on what we call technology and innovation. And we spent $260 million on what I would describe as classic corporate.

 

 

But let me kind of talk a bit about it. So technology and innovation, what we essentially did before we started breaking the company up was we centralized an enormous amount of our technology spend. So what does that mean? We didn't bother to develop a different set-top box platform in every market. We did not bother to develop a separate connectivity platform in every market. We did not ask every company to negotiate its own backhaul across Europe. We did that centrally. We did not ask them to develop a central product suite for things like mobile and B2B. And we also, from a legacy, we also ran a lot of the IT centrally. This is back -- way back in the day when we had a lot of small countries when, in fact, Holland was our biggest country. We had a system called [ Darby ]. So Ireland and Slovakia and Switzerland, all these countries have shared a common IT platform.

 

 

So that, we spent $800 million. And what we did internally was re-charge that back into the countries. And it was never particularly explicit to investors because we didn't provide that level of disclosure because we were doing an integrated story. It became explicit when we did these TSAs because, in effect, Austria can't work without access to our video platform. Vodafone Ziggo can't work without access to... well, that was the first one. And so -- and also, we'd reached the peak in the investment cycle. So the numbers are that technology and investment number goes from $800 million in 2018, $700 million this year and will go $600 million next year. That's the first piece of news.

 

 

Secondly, and you've got to be quite an analyst to kind of figure this out, but if you annualize all the TSAs, you reach the conclusion that the operations that we retain, Switzerland, U.K., Poland, Slovakia and Ireland, are bearing $300 million of the cost this year. Of the $700 million, $400 million is the stuff we sold, $300 million is what we retained. And we believe that, that $300 million a year re-charge will be flat to down over the next 6, 7 years.

 

 

And why are we so confident in that? Because a lot of this cost is third-party flex costs. Our internal labor is only about 10%. It's contracts and licenses. So for example, when Vodafone Ziggo goes off the Darby platform, we will cancel or end those licenses and the flex costs will flex down. And so we're very comfortable that the net re-charge -- just to reiterate, the $300 million, which is divided between those retained companies, will remain. And we're going to start breaking that out for you in our 10-K or -- I think we do in 10-K, but certainly in 10-Qs next year, we're going to show you the cost before and after that re-charge. So investors can see the underlying free cash flow of each of the assets.

 

 

And then the last bucket was the corporate overhead, which is $260 million. We have reduced that by 30%. So it's going to be about $230 million this year, it will be $200 million next year, which has gone through with significant headcount reduction because it's largely headcount. And that's obviously been painful, but it's done. And so that's hopefully where we stand. So the way to think about it is you look at the underlying free cash flow of our businesses, and we try to break that out; and then there's a $200 million corporate overhead and you should decide how you want to value that.

 

 

[Mungerish]

Comments re: CHTR

 

Benjamin Daniel Swinburne

Morgan Stanley, Research Division

 

Yes. Yes, because I think in video, you are seeing some of what we see in the U.S., which is your content costs are growing, what, high single digits this year, somewhere along those lines. It's not a sustainable...

 

 

Charles H. R. Bracken

Executive VP & CFO

 

I agree with that. And the danger in our content deals is basically 2 guys, BT Sport and Sky, and these are essentially 4- to 5-year renegotiations. So that will taper down and measure off, depending on where you are in the cycle.

 

 

But I think you're making the right point, that the model on video -- I'm [indiscernible] Eric Zinterhofer, who is the Chairman of Charter, a couple of weeks ago, and he was saying, to some extent, the U.S. is very relaxed because it's a totally variable model. They don't really mind. And I mean really, the key cash flow growth is coming out of broadband. And I would say Virgin, particularly, that's very much an analogy. We're similar in that respect to the U.S.

 

[forest81]

I think this is a big takeover play here. As Malone says I think Sky/Comcast has to transition to over the internet. Well they are not going to want to piggyback on someone else's pipes. There are only 2 companies they can buy BT or Global. BT are mainly over copper phone wires and is a quasi government business. Vodafone can't just stay doing mobile/4g they need fixed wired capability and I can see them being very interested. Brookfields would be interested as they are looking for infrastructure assets. I think in the UK if you are looking for a high speed internet company with decent footprint there is only Global that you can buy. There are certain other players who are trying to build fibre but it will take too long to get anywhere near Globals spread. With the price that Global is trading at the minute would not be surprised to see it getting taken out very soon. Those pipes are very valuable. The main risk will be regulatory in my opinion.

[scorpioncapital]

So in the broadband business , the right mental model would be that there is a sweet spot between too much competition and too little, and when that balance is found you get synergies and good profits for the private providers? Australia tried a nationalized provider and service quality and costs was a problem. Too much wholesale competition on the other hand leads to ok networks but rock bottom prices and high costs to stay one step ahead..both extremes seem to destroy the business for shareholders. Maybe it's a bell curve. I do notice a hypocrisy though. Not dominant players complain against a tie up (eg orange in Belgium recently complaint by Telenet) and dominant players complain not being allowed a tie up. Seems all are talking their own interests. But generally scale would seem to be an advantage or might as well get out of the market

[Spekulatius]

I think this is a big takeover play here. As Malone says I think Sky/Comcast has to transition to over the internet. Well they are not going to want to piggyback on someone else's pipes. There are only 2 companies they can buy BT or Global. BT are mainly over copper phone wires and is a quasi government business. Vodafone can't just stay doing mobile/4g they need fixed wired capability and I can see them being very interested. Brookfields would be interested as they are looking for infrastructure assets. I think in the UK if you are looking for a high speed internet company with decent footprint there is only Global that you can buy. There are certain other players who are trying to build fibre but it will take too long to get anywhere near Globals spread. With the price that Global is trading at the minute would not be surprised to see it getting taken out very soon. Those pipes are very valuable. The main risk will be regulatory in my opinion.

 

Re SKY/ Comcast - it is my impression that SKY has their own internet network, they don’t have the last mile (or leg) and I am not sure how deep they have pushed into the neighborhoods. For the last leg, they indeed use BT. So I am not sure if merging their assets with Virgin Lightning is the best option,  I much less if regulators would allow so.

 

However, SKY is not just Britain, they are allowed Europe and they want to offer broadband everywhere it makes sense. Now with Telecom Italia forced to offer wholesale rates to resellers, they are going to offer broadband there as well, but I am sure they would go into other countries too, if it makes economic sense. That’s why I think that mergers with LBTYA or their subs are on the table.

[forest81]

Sky don't have any of there own network. They use openreach which is owned by BT. Openreach only have FTTC. Last mile copper phone line. Hence if sky want to do 4k programming over internet they need something better than BT. There is only Global.

[scorpioncapital]

But how about in 2021 to 2024? Bt is claiming full fiber for like half the homes in the UK. And altnets are working like ants to have full fiber in urban areas too. Maybe sky wants to co invest then buy an entire network might be obsolete.. already they're talking of co investment with liberty fiber and also altnets. On the other hand , global appears super cheap and where else can you get this scale for 12 to 13 billion market cap?

[forest81]

BT have been talking for many years about full fibre mainly to appease politicians who want it too happen. It will happen but will be mega costly and I believe will take beyond 2024. Altnets are building full fibre in some cities where it makes sense and this will curb Globals profit making ability no doubt. However Sky are in desperate need of a way of getting into homes over the internet now. I have Sky and you can only get 4k on your main box not on the mini sky Q boxes in other rooms. However I can 4k over internet through Netflix in every room. They will get left behind if they do not do something soon. Malone identified that Comcast/ Sky need to do something ASAP. As you correctly identify could you replicate Globals footprint for 13b. No way and it would take many years imo.