LILA - Liberty Global Latin America tracker

[no_free_lunch]

Thanks fa.  Based on that I think that a) I don't understand the financials and b) what I understand of the financials indicates it is not cheap.

[orion]

Over time both the cash tax and GAAP tax amounts will be equal. From my understanding, cash taxes are determined on a current year basis, tax liabilities reflected on a company’s financial statements include both current and future year tax liabilities. If this is true, doesn´t this mean LILA will have to pay a lower cash tax amount in the future? But I´m no expert in this matter.

[fa21212]

VTR should continue to be a meaningful cash tax payer as they have exhausted all their NOLs and do not have any Shields from depreciation

[muscleman]

Regarding currency hedges, it seems like LILA only has hedge for the debt, no hedges for the revenue?

http://google.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=10841078-1033-633094&type=sect&TabIndex=2&companyid=901298&ppu=%252fdefault.aspx%253fsym%253dLBTYA

 

 

( 4 )    Derivative Instruments

 

In general, we seek to enter into derivative instruments to protect against (i) increases in the interest rates on our variable-rate debt and (ii) foreign currency movements, particularly with respect to borrowings that are denominated in a currency other than the functional currency of the borrowing entity. In this regard, through our subsidiaries, we have entered into various derivative instruments to manage interest rate exposure and foreign currency exposure with respect to the U.S. dollar ( $ ), the euro ( € ), the British pound sterling ( £ ), the Swiss franc ( CHF ), the Chilean peso ( CLP ), the Czech koruna ( CZK ), the Hungarian forint ( HUF ), the Polish zloty ( PLN ) and the Romanian lei ( RON ). With the exception of a limited number of our foreign currency forward contracts, we do not apply hedge accounting to our derivative instruments. Accordingly, changes in the fair values of most of our derivative instruments are recorded in realized and unrealized gains or losses on derivative instruments, net, in our condensed consolidated statements of operations.

 

[rpadebet]

I think some very important points are discussed in this thread..

 

Here is my 2 cents

 

1. I think this is trading somewhere between 20-25x FCF currently.

2. That is not traditionally cheap but not super expensive either considering their previous playbook and runway here

3. There is growth and M&A premium built it, but how much depends on your view of interest rates/inflation/regulation in the part of the world they operate in

4. Cash taxes are the correct metric to use, but not historic. Need to use estimates of future cash taxes. I believe, GAAP and cash do converge over time.

5. Even if Revenues aren't hedged, most expenses are also in the same currency, so the currency exposure is actually limited to FCF to equity

 

Bottom line is, the investment thesis depends heavily on

1) how good they are at repeating the playbook the third time over

2) how long of a view you can take to wait for them to run the playbook successfully

 

I think by investing here, you are getting in close to the ground floor and if you can wait 5-10 years, there is a high probability this will be a big multi-bagger given the quality of the operators and business model.

 

The risk to equity is of course FX and regulatory stability in the countries they operate in.

[muscleman]

Does anyone understand the differences between "Net cash provided by operating activities of our continuing operations" and their own definition of OCF?

 

Operating Cash Flow Definition and Reconciliation

 

As used herein, OCF has the same meaning as the term "Adjusted OIBDA" that is referenced in our 10-Q. OCF is the primary measure used by our chief operating decision maker to evaluate segment operating performance. OCF is also a key factor that is used by our internal decision makers to (i) determine how to allocate resources to segments and (ii) evaluate the effectiveness of our management for purposes of annual and other incentive compensation plans. As we use the term, OCF is defined as operating income before depreciation and amortization, share-based compensation, provisions and provision releases related to significant litigation and impairment, restructuring and other operating items. Other operating items include (a) gains and losses on the disposition of long-lived assets, (b) third-party costs directly associated with successful and unsuccessful acquisitions and dispositions, including legal, advisory and due diligence fees, as applicable, and © other acquisition-related items, such as gains and losses on the settlement of contingent consideration. Our internal decision makers believe OCF is a meaningful measure and is superior to available GAAP measures because it represents a transparent view of our recurring operating performance that is unaffected by our capital structure and allows management to (1) readily view operating trends, (2) perform analytical comparisons and benchmarking between segments and (3) identify strategies to improve operating performance in the different countries in which we operate. We believe our OCF measure is useful to investors because it is one of the bases for comparing our performance with the performance of other companies in the same or similar industries, although our measure may not be directly comparable to similar measures used by other public companies. OCF should be viewed as a measure of operating performance that is a supplement to, and not a substitute for, operating income, net earnings or loss, cash flow from operating activities and other GAAP measures of income or cash flows. A reconciliation of total segment operating cash flow to our operating income is presented below.

 

 

In this SEC filing, their OCF is 128 million per quarter for LILA, but much smaller in GAAP's "Net cash provided by operating activities of our continuing operations".

 

http://google.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=10841724-5297-133087&type=sect&TabIndex=2&companyid=901298&ppu=%252fdefault.aspx%253fsym%253dLBTYA

[ni-co]

The tax question is really quite theoretical here. Take a look at how much tax LBTYA has paid for the last 5 years (cash or GAAP) compared to their operating earnings. Tax paid by VTR in the past doesn't matter either, because this is hugely dependent on how a company is managed and if they really optimize for it.

 

It boggles my mind that Malone's management teams belong to the very view that realize how much money is being wasted by running your company too profitable. Of course, you need to have the choice to optimize this by having high ROI investment opportunities to pour your cash flows into. Not every company can do that. But Malone tries to structure his companies in a way that they get this choice.

 

There is a huge economic difference between cash tax paid and GAAP tax because cash tax paid is money that went out the door and, therefore, can't compound for you. Tax deferral is an interest free loan – this is money that can work for you while you don't pay it. So, this is not a zero sum game. If managed the right way the two should never converge as long as your company keeps on living.

[Fat Pitch]

I'm at roughly $1.40 of FCF / share. Chile EBITDA: $330, 60% of Puerto Rico EBITDA: $120, Chile + 60% of Puerto Rico Capex: $200, Interest Expense: $150, Corporate Expense: $8.5mm, Share Based Comp: $5, Cash Taxes: $40mm. Gets you to roughly $55mm or $1.40 in FCF / share.

 

I'm looking at their cash flow statement and I'm getting different numbers than you are. Take their net earnings + D&A. Annualize the amount and subtract out ~85mm for maintenance capex. This is backwards looking as every new customer they add to their current system will expand their margins going forward. What makes this model powerful is their ability to acquire new cable systems with just incremental debt since they will be deleveraging each quarter from organic growth.

[folivera13]

I'm at roughly $1.40 of FCF / share. Chile EBITDA: $330, 60% of Puerto Rico EBITDA: $120, Chile + 60% of Puerto Rico Capex: $200, Interest Expense: $150, Corporate Expense: $8.5mm, Share Based Comp: $5, Cash Taxes: $40mm. Gets you to roughly $55mm or $1.40 in FCF / share.

 

I'm looking at their cash flow statement and I'm getting different numbers than you are. Take their net earnings + D&A. Annualize the amount and subtract out ~85mm for maintenance capex. This is backwards looking as every new customer they add to their current system will expand their margins going forward. What makes this model powerful is their ability to acquire new cable systems with just incremental debt since they will be deleveraging each quarter from organic growth.

 

Your PR EBITDA seems really low to me. Run-rate EBITDA excluding Choice is close to $150mm and Choice EBITDA with Synergies is around $45mm. How did you get the $200mm for capex? Does it exclude minority interest? Why did you assume $8.5mm in corp expense?

[no_free_lunch]

Capex for lila was $110m in the last 6 months.  How do you get from there to $85m per year?

[Fat Pitch]

Capex for lila was $110m in the last 6 months.  How do you get from there to $85m per year?

 

There's a difference between maintenance capex and growth capex. Net PP&E is 894mm. Do you really think they are turning over 20% of their base each year from total wear and tear??

[no_free_lunch]

I get that the $110m includes growth but they are only growing 7%.  IDK, I don't really have enough info to gauge how much of that is maintenance vs growth so I prefer to err on caution.  To say 60% of the total capex is so that the company can grow 7% well  .. that's possible but seems aggressive.

[no_free_lunch]

I cannot figure out how to post a link directly to it, but if you go to underwater capital's twiter feed https://twitter.com/chalkbaggery there is a great little table on LILA.  It includes historical and forecast numbers from 2014 through to 2018.  It includes FCF & EBITDA plus numerous other metrics.

 

In particular they have FCF yield for 2015 coming in around 5.5% or 19x, and EV/EBITDA at 7.9x.  Based on these calculations he is coming up with a $71 price target in 2018 based on modest organic growth (looks like 5%-ish per year), no acquisitions, margins gradually improving from 40% to 42%, and a terminating EV/EBITDA around 9x.  I think it is a great summary for those trying to decide whether to do the analysis but obviously you will want to check the numbers.

[ni-co]

I cannot figure out how to post a link directly to it, but if you go to underwater capital's twiter feed https://twitter.com/chalkbaggery there is a great little table on LILA.  It includes historical and forecast numbers from 2014 through to 2018.  It includes FCF & EBITDA plus numerous other metrics.

 

In particular they have FCF yield for 2015 coming in around 5.5% or 19x, and EV/EBITDA at 7.9x.  Based on these calculations he is coming up with a $71 price target in 2018 based on modest organic growth (looks like 5%-ish per year), no acquisitions, margins gradually improving from 40% to 42%, and a terminating EV/EBITDA around 9x.  I think it is a great summary for those trying to decide whether to do the analysis but obviously you will want to check the numbers.

 

The direct link to this tweet: https://twitter.com/chalkbaggery/status/632196385996177408

[no_free_lunch]

It looks like lilak is now trading cheaper than lila.  About 1% at this point.  However looking at LBTYA vs LBTYK it looks like the K series (c class?) is about 7 or 8% cheaper.  Does anyone have any thoughts on which is the safer class to hold?  I would prefer not to buy lilak now only to have it permanently adjust down to a 7% spread.

[Jurgis]

It looks like lilak is now trading cheaper than lila.  About 1% at this point.  However looking at LBTYA vs LBTYK it looks like the K series (c class?) is about 7 or 8% cheaper.  Does anyone have any thoughts on which is the safer class to hold?  I would prefer not to buy lilak now only to have it permanently adjust down to a 7% spread.

 

Usually it's a good idea to switch to non voting on ~7% spread (I am anchoring here haha) and to voting at 0-3% spread. But that's "usually" and all that. You might just buy any class you like and fogetaboutit.

 

Edit: thanks for asking. I just switched my LBTYA to LBTYK. Let me know when the spread tightens ;)

[Liberty]

[folivera13]

Found via @BluegrassCap

 

Cable boost at heart of Millicom's Latin American ambitions

http://www.ft.com/intl/cms/s/0/87296d88-3092-11e5-8873-775ba7c2ea3d.html#axzz3j6jK9DMr

[no_free_lunch]

I don't have an FT login.  Anyone care to  give the TLDR?

[peluche]

I don't have an FT login.  Anyone care to  give the TLDR?

 

This link should work:

https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0CB8QFjAAahUKEwjftK30lbHHAhXBNYgKHVCRAkk&url=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F87296d88-3092-11e5-8873-775ba7c2ea3d.html&ei=3WDSVZ_SHMHroATQoorIBA&usg=AFQjCNEgaUjKztTWF9wFrT8-gPYQh9tQLQ&sig2=k30c6N_zPZO4TZgeQqiD3A&bvm=bv.99804247,d.cGU

[rogermunibond]

Thanks for posting the story on Millicom.  In it there's mention of possible merger with Cable&Wireless that Malone owns a 13% stake in through their acquisition of Columbus International in 2014.  His ownership is in a private vehicle not LBTYA or LMCA.  Does this pose any issues with any of you?

 

 

[no_free_lunch]

Thanks for posting the story on Millicom.  In it there's mention of possible merger with Cable&Wireless that Malone owns a 13% stake in through their acquisition of Columbus International in 2014.  His ownership is in a private vehicle not LBTYA or LMCA.  Does this pose any issues with any of you?

 

 

 

For those of us a bit slower, could you elaborate?  Do you see there being a conflict with LILA because they are in the same geographic area?

[Jurgis]

Malone cos have had conflicts of interest between various parts for ages now. You either live with that or not. Yet another possible conflict of interest is not really news.

[rogermunibond]

Actually I wasn't sure, so was checking to see if anyone had followed Malone's investment in Columbus International.  I looks like C&W and LILA don't overlap.  If anything C&W would be a takeover candidate for LILA.

[Jurgis]

Actually I wasn't sure, so was checking to see if anyone had followed Malone's investment in Columbus International.  I looks like C&W and LILA don't overlap.  If anything C&W would be a takeover candidate for LILA.

 

Right. But even that could be considered conflict of interest.

 

As I said, if you invest in Malone cos, you have to live with that. :)