LILA - Liberty Global Latin America tracker

[spark411]

Puerto Rico's numbers are 29% off and are temporary.  When the infrastructure is rebuilt, I'm betting earnings will be at least previous levels.  Also, C&W numbers are accelerating even with the Hurricane impacts.  I think the C&W numbers will see continued growth with the new CEO.  The new CEO will have an easier time leveraging Liberty Global's strengths i.e. tap into institutional knowledge via relationships already built at Liberty Global, content, etc.

 

The beauty of this business is that even with minimal revenue growth, this stock can outperform.  I think the key is the gap between the yield and the debt cost.  As long as there is a spread, the team can re-invest the spreads into new products, geographies, or acquisitions.    The key strengths are access to content, lower cost of capital, and management team institutional knowledge with a clear playbook.  Lilak can use these strengths to buy competitors with 10x EBITDA (going rate for deals) and boost earnings to continue to keep the spread between yield and debt going. 

 

I don't know how to paste on this forum so I've added an attachment.   

Lilak_OIBDA_Trends.pptx

[marazul]

One major issue is that LILA has subpar assets in some important markets. Too much mobile exposure in competitive markets and a high % of the wireline plant is copper based. Also, the company is overlevered. These issues were presnet before the unfortunate events at PR.

[no_free_lunch]

I see C&W revenue as being up 2% y/y, chile is up 4-5% which is decent.  However they are pumping a lot into capex to get those numbers.  It just concerns me to focus on acquisitions when it doesn't seem that appealing on an organic basis.  If C&W starts putting out better results I would reconsider.

[fisch777]

The problem with roll-up strategy is your equity currency is not very valuable due to C&W deal disaster, so it is a self-inflicted and perpetuating problem.  They can't just borrow another turn or two with current leverage levels and stale cash flow growth.

[Foreign Tuffett]

The problem with roll-up strategy is your equity currency is not very valuable due to C&W deal disaster, so it is a self-inflicted and perpetuating problem.  They can't just borrow another turn or two with current leverage levels and stale cash flow growth.

 

+1 to this comment. In my opinion acquisitions are the last thing LILA should be thinking about right now.

 

I also think it's important not to gloss over the tragic situation that Puerto Rico currently finds itself in. Pre-hurricane, PR was in the midst of a decade-long recession. Post-hurricane, hundreds of thousands of Puerto Ricans, many of them of prime working age, have already left the island for the mainland US. Many of them may never come back.

 

 

[Spekulatius]

The problem with roll-up strategy is your equity currency is not very valuable due to C&W deal disaster, so it is a self-inflicted and perpetuating problem.  They can't just borrow another turn or two with current leverage levels and stale cash flow growth.

 

+1 to this comment. In my opinion acquisitions are the last thing LILA should be thinking about right now.

 

I also think it's important not to gloss over the tragic situation that Puerto Rico currently finds itself in. Pre-hurricane, PR was in the midst of a decade-long recession. Post-hurricane, hundreds of thousands of Puerto Ricans, many of them of prime working age, have already left the island for the mainland US. Many of them may never come back.

 

I agree with above. PR may never come back fully. Also, when your stock is trading at 7x EBITDA doing acquisitions at 10x EBITDA does not make any sense. That is what LILA did with the CW acquisition a while ago and a big reason why the stock is in the doghouse.

[Jurgis]

What's with LILA showing up twice in Fido portfolio for last couple of days (there's LILA and there's G5480U138 which is LILA too)?

 

I'm happy with a quick double  :P but what the...?

[gfp]

Its because it isn't a tracking stock anymore.  Will take a few days for all the brokers to sort it out and stop double counting it.

 

What's with LILA showing up twice in Fido portfolio for last couple of days (there's LILA and there's G5480U138 which is LILA too)?

 

I'm happy with a quick double  :P but what the...?

[Shooter MacGavin]

anyone know why LILAK is up 7.5% today? 

[Liberty]

anyone know why LILAK is up 7.5% today?

 

Maybe this?

 

https://www.army.mil/article-amp/199469/usace_prepa_announce_power_restored_to_more_than_1_million_customers

 

(h/t Shlomi Tsur )

[Shooter MacGavin]

Yeah maybe.  Thanks.

 

Seems an odd reaction. I mean they didn’t restore 1m homes overnight. But anyway, that’s the market!

 

Of course what’s most important is thaf  the homes are being restored with power out there! Can’t imagine the suffering.

 

[Liberty]

I don't understand why the US seems to have forgotten about Puerto Rico...

 

Listen to this:

 

https://overcast.fm/+LHycafZNs

[Foreign Tuffett]

I don't understand why the US seems to have forgotten about Puerto Rico...

 

Listen to this:

 

https://overcast.fm/+LHycafZNs

 

Although PR is part of the US, it's over 1000 miles away from Florida and isn't a state. Nearly half of all Americans aren't aware that Puerto Ricans are US citizens. Similarly, Puerto Ricans look different and speak a different first language than do most Americans who live in the lower 48. See the Jones Act as an example of the US government being generally indifferent to the interests of PR.   

 

https://www.nytimes.com/2017/09/26/upshot/nearly-half-of-americans-dont-know-people-in-puerto-ricoans-are-fellow-citizens.html

 

[Liberty]

I don't understand why the US seems to have forgotten about Puerto Rico...

 

Listen to this:

 

https://overcast.fm/+LHycafZNs

 

Although PR is part of the US, it's over 1000 miles away from Florida and isn't a state. Nearly half of all Americans aren't aware that Puerto Ricans are US citizens. Similarly, Puerto Ricans look different and speak a different first language than do most Americans who live in the lower 48. See the Jones Act as an example of the US government being generally indifferent to the interests of PR.   

 

https://www.nytimes.com/2017/09/26/upshot/nearly-half-of-americans-dont-know-people-in-puerto-ricoans-are-fellow-citizens.html

 

I know all that. Still doesn't seem like a good reason. But then, the same thing happened with New Orleans..

[KJP]

I don't understand why the US seems to have forgotten about Puerto Rico...

 

Listen to this:

 

https://overcast.fm/+LHycafZNs

 

You don't need to be on an island 1,000 miles away to be forgotten about in the US:  https://www.theguardian.com/us-news/2017/sep/05/hookworm-lowndes-county-alabama-water-waste-treatment-poverty

 

 

[rpadebet]

I don't understand why the US seems to have forgotten about Puerto Rico...

 

Listen to this:

 

https://overcast.fm/+LHycafZNs

 

 

 

You don't need to be on an island 1,000 miles away to be forgotten about in the US:  https://www.theguardian.com/us-news/2017/sep/05/hookworm-lowndes-county-alabama-water-waste-treatment-poverty

 

Do Puerto Rican's have a vote or elected representative for them in the US Congress? Does their vote matter in the Presidential elections? I suspect not, but then why not?

[Foreign Tuffett]

I don't understand why the US seems to have forgotten about Puerto Rico...

 

Listen to this:

 

https://overcast.fm/+LHycafZNs

 

 

 

You don't need to be on an island 1,000 miles away to be forgotten about in the US:  https://www.theguardian.com/us-news/2017/sep/05/hookworm-lowndes-county-alabama-water-waste-treatment-poverty

 

Do Puerto Rican's have a vote or elected representative for them in the US Congress? Does their vote matter in the Presidential elections? I suspect not, but then why not?

 

The short answer is that residents of PR are nearly completely disenfranchised at the federal level.

 

[Liberty]

New acquisition:

 

https://seekingalpha.com/pr/17072486-liberty-latin-america-acquire-controlling-interest-cabletica

[mike]

New acquisition:

 

https://seekingalpha.com/pr/17072486-liberty-latin-america-acquire-controlling-interest-cabletica

 

Is it a good time to do another acquisition? Not sure they have digested the last acquisition.

[Spekulatius]

New acquisition:

 

https://seekingalpha.com/pr/17072486-liberty-latin-america-acquire-controlling-interest-cabletica

 

Is it a good time to do another acquisition? Not sure they have digested the last acquisition.

 

The 6.3x EBITDA price paid after synergies scares me. I would like to know what they paid before synergies. The fact that they don’t, tells me that it is probably too much.

[spark411]

I look at this as a positive.  The thesis for me is that Malone has a proven playbook to execute in Lilak.    A big part of the playbook are acquisitions.    Lilak should be able to buy poorly run assets and turn it around quickly with lower costs (debt, programming, and capex) and better processes.  The fact that they already bought an asset shows me that they are getting reception in the Latin American marketplace.

 

The multiple on a poorly run asset is not significant as what they think they can get after the acquisition.  Lilak could be aggressive on their assumptions but as long as they are getting about 8x, I think it's fine.  Big picture I think we want Lilak to generate free cash flow and redeploy that capital and generate more cash flow.

[maybe4less]

I look at this as a positive.  The thesis for me is that Malone has a proven playbook to execute in Lilak.    A big part of the playbook are acquisitions.    Lilak should be able to buy poorly run assets and turn it around quickly with lower costs (debt, programming, and capex) and better processes.  The fact that they already bought an asset shows me that they are getting reception in the Latin American marketplace.

 

The multiple on a poorly run asset is not significant as what they think they can get after the acquisition.  Lilak could be aggressive on their assumptions but as long as they are getting about 8x, I think it's fine.  Big picture I think we want Lilak to generate free cash flow and redeploy that capital and generate more cash flow.

 

The synergies are huge in telecom acquisitions, so it makes sense to focus on the post-synergies number. This is how the M&A game works in this sector, the acquirer and the acquiree effectively share the snyergies.

[HalfMeasure]

I look at this as a positive.  The thesis for me is that Malone has a proven playbook to execute in Lilak.    A big part of the playbook are acquisitions.    Lilak should be able to buy poorly run assets and turn it around quickly with lower costs (debt, programming, and capex) and better processes.  The fact that they already bought an asset shows me that they are getting reception in the Latin American marketplace.

 

The multiple on a poorly run asset is not significant as what they think they can get after the acquisition.  Lilak could be aggressive on their assumptions but as long as they are getting about 8x, I think it's fine.  Big picture I think we want Lilak to generate free cash flow and redeploy that capital and generate more cash flow.

 

The synergies are huge in telecom acquisitions, so it makes sense to focus on the post-synergies number. This is how the M&A game works in this sector, the acquirer and the acquiree effectively share the snyergies.

 

Further, this is a consolidation vehicle. If you're not comfortable with the acquisition strategy, it's impossible to wrap your head around the stock. Part of any thesis requires comfort with management's ability to execute.

[WayWardCloud]

The good:

- They're paying in cash + debt. A stock purchase would have been a disaster at the price LILA is currently being valued by the market.

- The founding family keeps a meaningful interest in the cables (20%) and full ownership of the content creation arm of their company. They've signed an exclusivity contract with LILA to keep distributing their channels. It sounds to me that interests are well aligned and that LILA Costa Rica will enjoy the benefits of controlling some of its content without bearing the risks of actually owning the production company.

- Costa Rica seems well run (and beautiful!).

 

The bad:

- I agree that to read only of the multiple post synergy is scary (although it's really low so we might just be actually getting an awesome deal, who knows). The other obscure footnote to me is the IFSR/GAAP discrepancy. I know it's normal since a Latin American asset gets bought by a US company but I wish they'd do the math BEFORE the transaction closes because that was one of the problems with CWC/Columbus.

- I agree that LILA is mostly a bet on management and that one has to be comfortable with believing in their best intention and that they still have the magic touch. I happen to be a believer but it's not a huge position for me either because there are many risks here.

 

Footnote nb3: Such financial information is in accordance with International Financial Reporting Standards (“IFRS”), as adjusted to include the capitalization of customer installation costs, which are expensed in accordance with Televisora’s IFRS accounting policies and will be capitalized in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). Liberty Latin America has not completed its analysis of the differences between Liberty Latin America’s U.S. GAAP accounting policies and Televisora’s IFRS accounting policies with respect to Cabletica’s financial information.

[Gordon Gecko]

Any thoughts on earnings/call today?

 

Guidance seemed light, but PR sounded way ahead of most people's expectations.

 

Thoughts on PP&E adds as a % of sales? Seemed low given the reconstruction efforts. Maybe indicative of further deal flow? Or conversely, elevated competition and tight capital?