LILA - Liberty Global Latin America tracker

[brendanb22]

Seems like a bit of an overreaction. Do you think they will rebound from this or is it more of a structural problem?

[namo]

Yet according to them the corresponding OCF is up 3% as they cut costs. Yes, I was surprised by the reaction.

 

On the other hand, if you look at the raw numbers, the number of shares has been multiplied by 4 and the Y/Y OCF growth is +177%, so there's a big gap. It's probably a bad quarter, and the figures are before synergies, but that may explain some of the reaction?

 

I need to dig deeper into the numbers.

[muscleman]

Yet according to them the corresponding OCF is up 3% as they cut costs. Yes, I was surprised by the reaction.

 

On the other hand, if you look at the raw numbers, the number of shares has been multiplied by 4 and the Y/Y OCF growth is +177%, so there's a big gap. It's probably a bad quarter, and the figures are before synergies, but that may explain some of the reaction?

 

I need to dig deeper into the numbers.

 

The OCF growth comes entirely from synergies, which you can't rely on forever. The cost cutting can only go that far. You can't cut your cost below zero.

In addition, the original investment thesis already included the synergies, so we need to look at the OCF growth without synergies.

 

 

[Shooter MacGavin]

@namo, I'm not sure what you mean by OCF is up 3% as they cut costs and OCF growth is 177% Y/Y?

 

The sharecount went up because of the C&W acquisition since Liberty Global issued stock.  Of course OCF for Lilak is up 177% because of C&W.

 

On C&W alone, the revenue is down 4%.  It seems like they bought less than what they bargained for.  I say that because in July, C&W posted FY results for C&W saying that proportionate EBITDA was up 14% Y/Y.  And now all of a sudden, now that the deal is closed, on a re-based basis, they're going to be flat Y/Y for C&W.  So the old C&W team may have been far more optimistic before selling C&W to Liberty Global.

 

That being said, hopefully its a fixable problem.  Mike said something about management being distracted with the acquisition, delayed product launches and a more competitive environment, and that they're optimistic about synergies, which would add back roughly 10% to OCF/EBITDA over the next 4 years.

 

I wish Fries would stop being so optimistic and promotional and talk a little bit about what the challenges are in this business.  Rutledge is always more grounded.  And these guys need get their reporting cleaned up.  Every quarter its a bunch of noise.  They point to all the metrics in their favor, and throw like 3 dozen positive stats at you, only a few consistent with the stats they gave you last quarter.

 

[namo]

Those are all numbers from the press release. I'm only listening to the call now.

 

To clarify: I simplified things in the extreme, and said "OCF has done x2.7 when the number of shares has done x4 - no wonder Mr Market looks unhappy".

This is another way to say the same thing as you: it makes us wonder whether the acquisition was overpaid (I thought the price was a bit dear myself. I mostly trust Malone, but he had interests on both sides of the transaction here.)

 

Another tidbit from the call: they intend to spin LILAC off in H2 2017.

[Liberty]

Buybacks announced, 300m:

 

http://www.libertyglobal.com/pdf/press-release/Liberty-Global-Buyback-Program-LiLAC-FINAL.pdf

[meiroy]

Buybacks announced, 300m:

 

http://www.libertyglobal.com/pdf/press-release/Liberty-Global-Buyback-Program-LiLAC-FINAL.pdf

 

"The program will commence immediately and runs until year-end 2019.

Mike Fries, Chief Executive Officer, said, “The establishment of this buyback program for LiLAC tracking stock

demonstrates confidence in our business and its prospects"

 

Wanker.

 

 

 

[WayWardCloud]

Correct me if I'm wrong but that represents 1% of the market cap spread-out over 3 years. Fries is so promotional... Each of his publications seems like a tricky way to make us see positive signs. If that's his attempt at reassuring shareholders after Friday's drop (which he also tried to conceal in a smoke of mis-leading language in the Q3 report) he must really thinks of his shareholders as dummies  ???

[maybe4less]

Correct me if I'm wrong but that represents 1% of the market cap spread-out over 3 years. Fries is so promotional... Each of his publications seems like a tricky way to make us see positive signs. If that's his attempt at reassuring shareholders after Friday's drop (which he also tried to conceal in a smoke of mis-leading language in the Q3 report) he must really thinks of his shareholders as dummies  ???

 

Don't disagree that Fries has gotten more and more promotional, but I think your calculation is off by about an order of magnitude.

[WayWardCloud]

Oh you're right, I used Liberty Global Europe's market cap instead of Latin America's by mistake.

With a market cap of 3.36B, 300M represent 8.93% of shares being repurchased.

Thanks for pointing it out.

 

For those of you who are shareholders, are you guys adding, holding, selling?

[Liberty]

Buybacks announced, 300m:

 

http://www.libertyglobal.com/pdf/press-release/Liberty-Global-Buyback-Program-LiLAC-FINAL.pdf

 

"The program will commence immediately and runs until year-end 2019.

Mike Fries, Chief Executive Officer, said, “The establishment of this buyback program for LiLAC tracking stock

demonstrates confidence in our business and its prospects"

 

Wanker.

 

The date doesn't mean that the buybacks will be evenly distributed until then. It's just a way to keep it open-ended. They have limited FCF right now, but it should pick up next year. They could use the whole 300m quickly with a bit of debt and pay it back next year, or if the stock bounces back immediately (not a prediction), they could sit on it and have it available until 2019 as an option.

[scorpioncapital]

Promotional could mean proactive, glass half full sort of thing. Not saying Latam cable is the best business in the world but like at IBM and other companies that have some troubles, proactive ceo's are sort of doing capital allocation decisions that an activist might do if they had to come in, seems like pre-empting such complaints.

[rogermunibond]

Digicel has problems

 

Read more: http://www.caribbean360.com/business/troubling-signs-ahead-digicel

 

LONDON, England, Monday December 19, 2016 – A leading voice on global credit markets has raised a red flag about the operations of telecommunications provider Digicel.

 

Independent research provider CreditSights has released a gloomy report about the company, which operates in 32 Caribbean countries, warning that turbulent times were ahead.

 

In the presentation released in London, entitled ‘Digicel: Should I stay or go’, CreditSights debt analyst Michael Chakardijan said the company was burdened with high debt estimated at more than US$6 billion and this was unsustainable.

 

“We view that there is limited to no equity cushion. This gives the company little wriggle room for poor performance and there is not an immaterial threat of distress in the event of poor results in key markets,” he said in a report published in the Irish Examiner.

 

Digicel, which is owned by Irish businessman Denis O’Brien, has rejected the report, saying: “Digicel’s outlook remains positive with robust plans to deliver by monetizing our network investment and through realistic cost- management initiatives.”

 

 

DIGICEL FOUNDER DENIS O’BRIEN

The company has, however, embarked on a major cost-cutting plan and hired financial consultants McKinsey and Goetzpartners to help cut its massive debt burden.

 

The plan, dubbed Project Swan, includes using more technology and the streamlining of back office functions to maximize efficiencies.

 

At the same time, Digicel said it would significantly grow its earnings and is pinning its hope on a significant drop in expenditure when its cable and fibre programme begins to bear fruit.

 

Last month, the company assured bond market investors that these initiatives would increase it profits by 24 percentage points by March 2018, leading to a return to growth.

 

CreditSights is however not convinced. Chakardijan described the plans as “highly ambitious” and “opaque” and doubted management’s ability to deliver.

 

“We believe management’s deleveraging plans come with substantial execution risk, which is a very important point,” he said.

 

The expert explained that Digicel’s debt woes were compounded by declining interest in its services, noting that revenues from phone calls have dropped as users opt for calling services provided by Viber, Whatsapp and Skype.

 

Chakardijan said the company also had to be concerned about currency fluctuations in some of its overseas markets.

 

In October last year, O’Brien pulled an initial public offering of Digicel shares, in which the company was seeking to raise as much as US$2 billion to help lower its debt mountain, expand operations and list on the New York Stock Exchange.

 

 

 

 

[Liberty]

Q4 is out.

 

LiLAC Group Highlights

• Gained 94,000 organic RGUs in 2016, powered by strong broadband additions

• Reported 47,400 mobile subscriber additions in 2016, with majority on postpaid

• Stabilized CWC revenue YoY in Q4 2016

• Delivered solid 2016 rebased revenue growth of 6% in Chile

• Operating income for LiLAC Group increased 29% in 2016

• LiLAC Group delivered 6% rebased OCF growth in 2016, including 9% growth excluding CWC

    CWC Q4 U.S. GAAP OCF reported $226 million, ahead of Q4 target

• Closed CWC deal in May of 2016; integration ongoing

    Expecting $150 million of synergies due to LiLAC/CWC integration by 2020

 

Here's the presentation:

 

http://www.libertyglobal.com/pdf/presentations/LiLAC-Group-Investor-Call-Q4-2016-Presentation-FINAL.pdf

[HalfMeasure]

Can anyone comment on Q4 results compared to Q3? Just started following the situation recently and I'm trying to get up to speed - seems like quite the quarter-to-quarter round trip in a business that's usually coveted for the recurring nature of the revenue base.

[cookies]

Sure -

 

Chile OCF 94mm vs. 82mm (4q YoY)

PR OCF 59mm vs. 46mm (4q YoY)

CWC was just purchased and is stabilizing - weather, zika, currency issues

 

adj fcf 116mm for the quarter...465mm annualized.

 

However, there's a lot of minority interests here and imperfect information with which to examine in detail.  People come up with their own estimates of FCF attributable to the tracking stock based on various data points.  I've done my work but wouldn't publish for others given I used estimates and assumptions a lot.

 

seems like high single digit FCF yield at these valuations and ~7.5x ebitda.

 

if you try to normalize for maintenance capex FCF yield higher. 

 

what i like: tentacles in many markets (i.e. lots of different markets means company has lots of areas from which to pick highest ROI); markets with low broadband/wireless penetration and ARPUs (which means room to go up); data is a high growth area; digicel the main competitor for CWC is overlevered (this can be good or bad as a healthy oligopoly is fine, they may act aggressively as they go after business through pricing); own huge underwater fiber asset (which means their backhaul costs are lower - competitive advantage); malone company which means they are certainly focused on ROI, cashflow, and long-term value... however, it's a cable company in foreign markets and bad/depressed economies (PR and some of Caribbean).

 

any disagreements, additions welcome!

 

~5-6% position for me.

[HalfMeasure]

Given all the noise in the last year of financials, how is everyone on this board thinking about modeling/valuation to get enough comfort for the idea to be investable?

[Liberty]

Q1 results:

 

http://www.libertyglobal.com/pdf/press-release/LG-Q1-2017-Press-Release-FINAL.pdf

[meiroy]

"and are preparing for the hard spin of LiLAC Group towards the end of the year."

 

To this is the only thing that matters about LiLAC.  For sure it ain't the buybacks. "while also

repurchasing around $20 million of LiLAC Group equity".  Pfft.

 

 

 

[Liberty]

What a swing in Mr. Market's sentiment for LILA today :D

[no_free_lunch]

I am trying to understand this hard spin concept.  So currently it just a tracking stock and I guess it will be it's own independent company with separate SEC filings.  However what is the win there other than more costs?  I am not questioning the wisdom of the move, I just legitimately don't understand the angle.

[Jurgis]

Presumably markets value "real companies" higher than tracking stocks.

 

It is easier to sell the company.

[flesh]

They still did a separate lilac conf call today , correct? I've been looking for it on the IR site.

[Liberty]

They still did a separate lilac conf call today , correct? I've been looking for it on the IR site.

 

Yeah, they did. It was at 10:30 AM.

[forest81]

Listened to the conference call. I must say they sounded very bullish. I really like this. Massive growth potential. I see directors have been buying around this level as well. Just don't know wether I have enough bottle to increase my position. I bought at much higher prices. Saying that it is probably one of my favourite ideas right now.