CVC - Cablevision Systems Corp

[dwy000]

For all the Liberty/Charter/cable fans (of which I am a core member)...Cablevision is looking quite compelling these days.

 

Over the past few years the company has shed almost all of the excess baggage to become a pure play cable provider with probably the best margins in the business.  They have divested their Rainbow Media assets (including AMC networks), the MSG holdings, sold off Bresnan Cable and Clearview and are left with a midsized cable provider with some enviable metrics.

 

3Q numbers came out today which continued the trend for the year.  Subscriber numbers bleeding a bit (total customers down 1% Y-o-Y) but more than offset by pricing.  My back of the envelope valuation puts them at about 6.7x EBITDA and even better, at 9x FCF since the capex spend has tapered off and is less than dep'n.  That's well below Comcast, Charter, TWC and the value that those companies have traded assets (7.5x EBITDA for the asset swaps).  And that's with no need to continue buildout or improve margins.  They throw off prodigious amounts of cash.

 

  EBITDA (annualized):  $1,886.8mn

  Net Debt:  $7,918.3mn

  Mkt Cap:    $4,932.2mn

  = Ent Value/EBITDA:  6.81x

 

If you exclude the $220mn value of Comcast shares they have in excess of the borrowings against those shares the multiple comes down to 6.69x.

 

Now the downsides are that the Dolan family continues to control the company which puts a damper on the likelihood of it being a consolidation play (logical outcome for them).  In addition, without the need to spend a ton on capex, all that cash flow is taxable and their tax assets will be used up in about 2 years or so (although that should stimulate thoughts about maximizing long term value).  They face some heavy competition from Verizon which has resulted in the sub declines - although interestingly it doesn't seem to have impacted the ability to get price increases.  Finally, they continue to operate Newsday which should long ago have been carved off or shut down.  And of course.....there's no John Malone angle which is worth a good 1x eBITDA multiple to me.

 

Am I missing anything on this?  It's looking pretty appealing unless you feel the sub count is going to fall off a cliff soon.

 

 

[ItsAValueTrap]

From the latest 10-K

Income from continuing ops - $127M

Income from discontinued ops - $338M

 

If you use income from continuing ops, then the P/E doesn't look so great.

D&A is close to capex.  So if you define free cash flow as earnings + D&A - capex, then free cash flow is close to P/E.

 

Is this actually cheap?

[dwy000]

From the latest 10-K

Income from continuing ops - $127M

Income from discontinued ops - $338M

 

If you use income from continuing ops, then the P/E doesn't look so great.

D&A is close to capex.  So if you define free cash flow as earnings + D&A - capex, then free cash flow is close to P/E.

 

Is this actually cheap?

 

YTD 9 month FCF of $400mn.  That's operating income (there are no disc. ops in 2014) - capex.  So it's a pretty clean cash number.  If you extrapolate out to 12 mos. that's $533mn annual FCF - or $2/share.

[ItsAValueTrap]

That's operating income (there are no disc. ops in 2014) - capex.

To me, that's a strange defintion of free cash flow.  Operating income already includes D&A.  By subtracting capex on top of that, you are essentially double counting capex???

 

And also... your numbers don't seem to add up.  Could you clarify what your numbers and calculations are?

 

2- I never understood the EBITDA multiple nonsense.  Clearly, interest and maintenance capex are very real expenses.  So is tax.

[dwy000]

That's operating income (there are no disc. ops in 2014) - capex.

To me, that's a strange defintion of free cash flow.  Operating income already includes D&A.  By subtracting capex on top of that, you are essentially double counting capex???

 

And also... your numbers don't seem to add up.  Could you clarify what your numbers and calculations are?

 

2- I never understood the EBITDA multiple nonsense.  Clearly, interest and maintenance capex are very real expenses.  So is tax.

 

You're right, my bad. I meant to say Operating Cash Flow (not operating income).  It's after adding back Depreciation and taking into account working capital changes.

 

The numbers came from the 3Q press release.  CFO of $1,029 minus $629 of capex = $400 of FCF.  That's 9 months so multiply by 4/3 to get full year of $533.

 

Yeah, I've never been a big fan of EBITDA multiples either since it completely ignores capex requirements.  But it seems to be the standard of comparison in cable.

[Liberty]

 

Andrew Ross Sorkin:

 

@andrewrsorkin: Breaking: Altice to buy Cablevision for $17.7 billion including debt, people involved in negotiations say...details coming....

 

@andrewrsorkin: Altice will pay $34.90 a share in cash for each Cablevision share