ATUS - Altice USA

[walkie518]

Altice USA spun from Altice NV a few days ago.

 

I get the feeling that Altice NV has had a strong focus on quarterly targets instead of longer-term returns, but I am not sure if this spread so deeply into Altice USA?

 

At the same time, I would think that ATUS' proforma figures should be pretty good since it's a geographic split. 

 

I see 737m shares at $17.71/sh or $13.05B Mcap and roughly 6.5x cash from ops

 

Given the leverage, I suppose the valuation makes sense despite the selling pressure from the spin?  Is there something I'm missing?  How is this deal so efficient while Charter is so cheap? 

 

 

[wisowis]

Attracted the attention of Greenlight Capital.

 

The Partnerships made a new investment in Altice USA (ATUS) at an average price of $18.38.

ATUS trades at an EBITDA multiple discount to pure-play cable peers Charter Communications

and Cable One despite better free cash flow conversion and better new investment opportunities.

ATUS is rebuilding a majority of its network with fiber in the coming years, with an anticipated

40-50% return on its investment. The shares trade at a 10% cash flow yield, in part because of

market concerns over cord-cutting. But when a customer drops linear video and instead streams

video through their broadband connection, data consumption rises very dramatically, which is

positive for ATUS. ATUS shares ended the quarter at $18.14.

[maybe4less]

Attracted the attention of Greenlight Capital.

 

The Partnerships made a new investment in Altice USA (ATUS) at an average price of $18.38.

ATUS trades at an EBITDA multiple discount to pure-play cable peers Charter Communications

and Cable One despite better free cash flow conversion and better new investment opportunities.

ATUS is rebuilding a majority of its network with fiber in the coming years, with an anticipated

40-50% return on its investment. The shares trade at a 10% cash flow yield, in part because of

market concerns over cord-cutting. But when a customer drops linear video and instead streams

video through their broadband connection, data consumption rises very dramatically, which is

positive for ATUS. ATUS shares ended the quarter at $18.14.

 

Another long he'll lose money on.

[mateo999]

Attracted the attention of Greenlight Capital.

 

The Partnerships made a new investment in Altice USA (ATUS) at an average price of $18.38.

ATUS trades at an EBITDA multiple discount to pure-play cable peers Charter Communications

and Cable One despite better free cash flow conversion and better new investment opportunities.

ATUS is rebuilding a majority of its network with fiber in the coming years, with an anticipated

40-50% return on its investment. The shares trade at a 10% cash flow yield, in part because of

market concerns over cord-cutting. But when a customer drops linear video and instead streams

video through their broadband connection, data consumption rises very dramatically, which is

positive for ATUS. ATUS shares ended the quarter at $18.14.

 

Another long he'll lose money on.

 

Why do you say that?

[maybe4less]

Attracted the attention of Greenlight Capital.

 

The Partnerships made a new investment in Altice USA (ATUS) at an average price of $18.38.

ATUS trades at an EBITDA multiple discount to pure-play cable peers Charter Communications

and Cable One despite better free cash flow conversion and better new investment opportunities.

ATUS is rebuilding a majority of its network with fiber in the coming years, with an anticipated

40-50% return on its investment. The shares trade at a 10% cash flow yield, in part because of

market concerns over cord-cutting. But when a customer drops linear video and instead streams

video through their broadband connection, data consumption rises very dramatically, which is

positive for ATUS. ATUS shares ended the quarter at $18.14.

 

Another long he'll lose money on.

 

Why do you say that?

 

Sorry, mostly just a joke.

[walkie518]

Attracted the attention of Greenlight Capital.

 

The Partnerships made a new investment in Altice USA (ATUS) at an average price of $18.38.

ATUS trades at an EBITDA multiple discount to pure-play cable peers Charter Communications

and Cable One despite better free cash flow conversion and better new investment opportunities.

ATUS is rebuilding a majority of its network with fiber in the coming years, with an anticipated

40-50% return on its investment. The shares trade at a 10% cash flow yield, in part because of

market concerns over cord-cutting. But when a customer drops linear video and instead streams

video through their broadband connection, data consumption rises very dramatically, which is

positive for ATUS. ATUS shares ended the quarter at $18.14.

 

Another long he'll lose money on.

 

Why do you say that?

 

Sorry, mostly just a joke.

 

Greenlight has made its share of mistakes, but ATUS likely isn't one of them.

 

Buying ATUS today might be like buying CHTR a year ago. 

 

That ATUS has an MVNO w/Sprint is fairly interesting. 

 

In some parts of the country, Sprint's coverage is worse than awful.

 

However, if you look at Altice USA's primary markets, Sprint has pretty good coverage.  My guess here is that Altice got a better deal than working with Verizon as Comcast and Charter have, but it likely doesn't give away anything as far as coverage is concerned? 

 

Anyone have a better feel or what's wrong with this map: https://coverage.sprint.com/

 

ATUS has a lot of firepower and no material maturities until 2025/6, at which point, ATUS will likely be a very different company. 

 

ATUS will be buying $5B of stock over the next 3 years ... in addition to the previous $1.5B plan?!

 

For a $22B mcap with 3% rev growth, continued margin expansion, and massive buyback, I can't tell you what next month will look like, but three years from now looks very good? 

 

[muscleman]

walkie518, thank you for your comments. Do you have any updates after their 2019 Q3? It doesn't look too bad to me but the stock  tanked quite a bit.

 

[walkie518]

walkie518, thank you for your comments. Do you have any updates after their 2019 Q3? It doesn't look too bad to me but the stock  tanked quite a bit.

If reading the tea-leaves correctly, the drop resulted from faster cord-cutting in Altice's footprint and lower guidance.

 

I'm indifferent to guidance but look to Charter as a reference.  The opportunity for Charter opened a little more than a year ago as they were launching their mobile business.  CHTR sank as the company dug its heels into this new strategy behind Comcast. 

 

Charter has not had video losses in the same way, but broadband, net-net, is a much better business than video ever was: Who pays for the content?

 

Altice is a content distribution business.  I believe the trends remain in ATUS' favor. 

 

Now, is it more likely a deal w/Charter could occur (stock for stock) at lower prices, sure, will it happen now, unlikely.  Would Charter prefer ATUS over the private Cox?  I couldn't say other than the higher valuations on might find in private markets today. 

 

At the end of the day, I don't think video losses mean broadband or SMB losses, and it's more likely to be a buying opportunity. 

 

Do I think online sales only of cell phones is a good idea?  Having a physical footprint might sell more phones, but if enough ppl know about it, the strategy might work.  This is speculative and I view the decline as somewhat speculative or fear-driven. 

 

[KJP]

Based on this very lightly used thread, I don't think Altice gets the attention it deserves, so I'll give it some.  The basic bull case for Altice is that it’s an essential utility trading at an ~10% and growing FCF yield, with sound capital allocation and little competition over much of its business.  (It's also a bit levered.)  But, of course, anyone pitching Altice must answer the question:  Why not Comcast or Charter instead?

 

Comcast seems committed to allocated capital to non-broadband businesses that I don't think are as good as broadband, so I won’t discuss its merits further.  Charter, on the other hand, is a very similar business with a very similar capital allocation policy.  So, why bother with Altice when you can buy Charter instead?

 

In pages 4-5 of the Comcast thread (https://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/cmcsa-comcast-nbcuniversal/30/), a poster observed (correctly I think) that Charter is a better cable business than Altice because it appears to have more untapped pricing power, is growing much faster in, for example, broadband subscribers, and doesn't have to deal with as much Verizon Fios (FTTP) overlap.  But that doesn't fully answer the question of whether Altice is a better investment than Charter, because Charter is significantly more expensive.  For example, I have Charter trading at ~12x 2020 EBITDA while Altice is at ~9.25x.  Altice is also more levered, so the multiple discrepancy gets bigger as you go further down the income/cash flow statements and normalize for taxes.  For example, if they were both full cash tax payers (and Charter is not .... yet!) I have Charter trading around 23x NOPAT while Altice is around 11x.  I'm too lazy to deconsolidate Lightpath and do a few other things, so these numbers might be off a bit, but they are close enough to illustrate my point that, on trailing numbers, Altice appears to be significantly cheaper than Charter. 

 

So, does Charter's better business more than make up for the price difference?  I'll try to examine that question by looking at the two superior aspects of Charter's business (untapped pricing power and growth) separately. 

 

Untapped pricing power

Here is a per customer (combining residential and business) comparison of Comcast, Charter and Altice based on 2020 numbers:

 

Category:      Comcast  /  Charter  /  Altice

Revenue (A):        1,811  /  1,545  /  1,969

OpEx (B):              1,049  /  950    /    1090

EBITDA (A-B):      762    /    594    /    878

 

Charter already has lower OpEx per customer (part of that is lower video penetration than Altice), but you can see that Charter’s lower ARPU leads to a big EBITDA gap.  The Charter bull thesis is that it will close that EBITDA/customer gap.  So, let's assume that, in 2020, Charter had already closed that gap with Comcast.  That would have raised Charter's 2020 EBITDA from $18.5 billion to $23.7 billion (31.1 million customers x 762).  Charter's current EV is about $220 billion.  So closing the "Comcast" gap would put Charter at about 9.3x EBITDA, essentially what Altice is trading at right now.  So, Charter’s “Comcast” gap ought not to explain all of the difference in valuation between it and Altice because, (i) Charter might not actually be able to fully close the "Comcast gap", and (ii) even if it can eventually, $1 years in the future isn’t worth $1 today. 

 

Of course, there's also a significant gap in EBITDA/customer between Comcast and Altice.  It's unclear to me whether the wealth and density of Altice's Optimum footprint (NY, NJ, CT) will give it a permanent EBITDA/customer advantage over Comcast and Charter.  Let's put that aside for a minute.

 

 

Growth

Is Charter's growth enough to close the rest of the apparent valuation discount to Altice?  Charter's recent broadband subscriber growth has been fantastic, while Altice's has been rather anemic.

Here are the annual comparisons:

 

Broadband sub growth rate:          2017  /  2018  /  2019 /  2020

Charter                                          5.97% /  5.38% /  5.56% /  8.31%

Altice:                                            0.95% /  0.84% /  0.83%  / 1.95% (some inorganic in Altice 2020)

 

But each company's growth in passings -- the raw material of broadband subs – has not shown anything close to this pattern:

 

Growth in passings: 2017  /  2018  /  2019  /  2020

Charter: 1.58%  /  2.93%  /  1.89% /  2.2%

Altice:  0.71%  /  1.34%  /  1.37% /  2.44% (again some inorganic growth in Altice 2020)

 

While Altice has lagged in passings growth, that gap isn’t nearly as large as the difference in internet subscriber growth.  Moreover, Charter is growing subs much faster than passings, which suggests that it has been increasing penetration.  And, indeed, it has:

 

Broadband penetration:    2017  /  2018  /  2019  /  2020

Charter:     48.2%  /  49.4%  /  51.1% / 54.2%

Altice:          47.1%  /  47.3%  /  47.5% /  48.3% 

 

Increasing penetration of passings is, of course, a very good thing because the incremental margins are very high.  But you cannot continuously increase subs at 6-8% a year while passings are increasing at only 2% per year.  Moreover, if the ARPU gap is an opportunity for Charter, is the penetration gap an opportunity for Altice?  Perhaps not, because Altice does overlap with Fios in its Optimum footprint and so may always have structurally lower penetration; on the other hand, Altice had said that a big portion of its Suddenlink footprint is very underpenetrated and is going to be upgraded to address that issue.

 

Two more points on the growth issue:  (i) Altice is increasing the pace of edgeouts to 150,000 per year and ramping from there at very high returns on capital, and (ii) Altice likely has more opportunities for meaningful tuck-in acquisitions, and potential bigger acquisitions than that (Atlantic Broadband!). 

 

So, while Charter’s recent history has shown much better subscriber growth, what will the next five years show relative to Altice?

 

What does all of this mean?

I own both Charter and Altice, but heavily weighted to Charter.  The purpose of this analysis for me is to examine whether that weighting is right.  I haven’t come to any conclusions yet but this post is long enough as it is, so I thought it was worth sharing these thoughts to start a discussion.

 

[KJP]

I doubt he needs any inspiration from me, but perhaps Andrew Walker reads this board:  https://yetanothervalueblog.com/2021/02/big-three-cable-still-too-cheap-atus-chtr-cmcsa-cabo.html

 

tl;dr:  Cable companies are cheap and Altice particularly so.  Like my prior post, Walker highlights that Altice is around 9.25x EBITDA (without adjusting for Lightpath) and Charter is at 12x.

 

 

[CorpRaider]

I saw Andrew's post but, missed your posts here KJP.  Thanks for posting.

[dwy000]

Great posts KJP.  That was a good analysis/comparison of the companies.

 

I would suspect that the multiple on Altice is lower than Charter largely due to growth rates as well as Charters rapidly shrinking Capex requirements.  I was pretty surprised in 4Q that Altice actually had negative broadband adds.  They normally hover in the 1% growth range vs. Charter in the 5-6% range.  Given Altice's geographic makeup they get much higher ARPU but dont have the same potential for growth.  Charter is much more rural and has more runway on that front.

 

The other thing that might be impacting it is the potential for M&A.  Altice is never going to be a seller.  Charter will sell if the price is right - and in fact Malone has stated on multiple occasions that Altice has approached him about an acquisition.  If you own Altice, that takeout premium potential will never happen.

 

But this is one where you don't have to pick just one.  Owning both is going to do you very well over the longer term.

[KJP]

Great posts KJP.  That was a good analysis/comparison of the companies.

 

I would suspect that the multiple on Altice is lower than Charter largely due to growth rates as well as Charters rapidly shrinking Capex requirements.  I was pretty surprised in 4Q that Altice actually had negative broadband adds.  They normally hover in the 1% growth range vs. Charter in the 5-6% range.  Given Altice's geographic makeup they get much higher ARPU but dont have the same potential for growth.  Charter is much more rural and has more runway on that front.

 

The other thing that might be impacting it is the potential for M&A.  Altice is never going to be a seller.  Charter will sell if the price is right - and in fact Malone has stated on multiple occasions that Altice has approached him about an acquisition.  If you own Altice, that takeout premium potential will never happen.

 

But this is one where you don't have to pick just one.  Owning both is going to do you very well over the longer term.

 

I agree that owning both makes sense.  Regarding CapEx, Altice's is also temporarily elevated because they are self-overbuilding FTTH across their entire Optimum footprint.  I wouldn't call this growth CapEx, because it's more future-proofing the existing business.  But it's also not really true "maintenance" either, because it's essentially a one-time expense -- once the fiber is in it's in.  So, in a few years, Altice's CapEx is going likely going to go from $1.3 - $1.4 billion annually to around $1 billion or so annually, which will give a big boost to FCF. 

 

The fact that Altice is investing in FTTH is also interesting.  Are Comcast and Charter going to have to do that?  They may need to eventually, but it seems to me that competition from Fios in the Optimum footprint has really pushed Altice to do it there sooner rather than later.

 

Finally, M&A in this area is interesting.  We know about the big synergies and tax shields that arise from mergers, and Altice has more needle-moving acquisition opportunities than Charter. 

 

In addition, at some point I suspect it may make a lot of sense for cable cos to merge with mobile providers as they continue to integrate their networks under existing partnerships.  Altice's logical eventual merger partner would be T-Mobile.  Given Charter and Comcast's MVNO situation, it's hard to forecast how that would work out.

[wabuffo]

Doesn't the market view Altice's main asset - Optimum Cable as largely super-saturated in terms of penetration rates in the NJ/NY/CT area? 

 

As such, its hard to see much growth in profitability (after Altice's cost cutting regime).  They are also much more leveraged than the other big players.  I think these factors play into the EV/EBITDA valuation differences.

 

In contrast, CHTR and CABO are viewed as still having room to optimize their markets and/or grow profitability/cash flows.  CMCSA is just a different kettle of fish with its broadcasting networks and theme parks, and I just avoid it entirely (even though it could be attractive)

 

I could be wrong, of course.

 

wabuffo

[Munger_Disciple]

The fact that Altice is investing in FTTH is also interesting.  Are Comcast and Charter going to have to do that?  They may need to eventually, but it seems to me that competition from Fios in the Optimum footprint has really pushed Altice to do it there sooner rather than later.

 

Charter's footprint is better than Altice's; Optimum competes head-to-head with Verizon's FiOS and FTTH is a better solution than coax. So in essence, Altice is forced to invest in FTTH in Optimum's footprint to defend their market share vs. Verizon. Altice is not doing this in Suddenlink footprint, which is similar to Charter's as there is no threat from FTTH over builders. So I think it is highly unlikely Charter & Comcast are going to do this for existing homes. Charter stated that they would do FTTH for all new builds.

 

For these reasons Altice's future growth is very close to zero in Optimum footprint. Any growth in HSD subs is likely to come from Suddenlink (better penetration) and new builds. This is not the case for Charter.

 

In summary I like both Charter & Altice. However the valuation difference is somewhat justified I think. I do think that Altice itself could be bought out by either Charter or Comcast if Patrick wants to sell. IIRC, Dexter said that they would be open to buyout but are in no rush. Dexter & Patrick are smart and realistic; they know Altice will always be a sub-scale player in the US.

[Munger_Disciple]

Doesn't the market view Altice's main asset - Optimum Cable as largely super-saturated in terms of penetration rates in the NJ/NY/CT area? 

 

As such, its hard to see much growth in profitability (after Altice's cost cutting regime).  They are also much more leveraged than the other big players.  I think these factors play into the EV/EBITDA valuation differences.

 

In contrast, CHTR and CABO are viewed as still having room to optimize their markets and/or grow profitability/cash flows.  CMCSA is just a different kettle of fish with its broadcasting networks and theme parks, and I just avoid it entirely (even though it could be attractive)

 

I could be wrong, of course.

 

wabuffo

 

+1

[KJP]

I agree that Charter's current EBITDA/cash flow deserves a higher multiple than Altice's for all the reasons mentioned.   

 

A couple of additional points:

 

1.  Currently Verizon Fios covers about 50% of the Optimum footprint.  Obviously the more Verizon chooses to build the worse for Altice.

 

2.  As far as I know, Altice stopped breaking out passings and penetration statistics for Suddenlink and Optimum at year end 2018.  At that point, Optimum was at about 52% penetration and hadn't increased that much since 2016.  Meanwhile, Suddenlink was at only 40% penetration.  That's consistent with management's commentary that there is a subset of Suddenlink that is very underpenetrated and they're working to address it by investing to increase speeds there.

 

3.  As things stand, Altice gets to buy back equity at a higher FCF yield than Charter. 

 

At the end of the day, if in 10 years Charter is going to have 80+% penetration while Optimum is stuck at only 50% penetration, that's a huge difference.  So, what is Charter's ultimate penetration rate?

 

I should also say that I'm playing a bit of devil's advocate here because my portfolio is currently 3 parts Charter for every 1 part Altice.

[KJP]

Small acquisition in North Carolina.  Note the tax benefits in the last quote; Altice is otherwise a full cash taxpayer starting in 2021:

 

"The transaction will expand Altice USA’s footprint in North Carolina, where it already has a presence with its Suddenlink business, and implies an enterprise value of $310 million total for the Morris Broadband business on a debt-free and cash-free basis. "

 

"Morris Broadband is a rapidly growing broadband communications services company providing high-speed data, video and voice services to approximately 36,500 residential and business customers in western North Carolina. As of December 31, 2020, Morris Broadband passed approximately 89,000 homes throughout growing communities including Hendersonville, Franklin, Sylva, Nebo and West Jefferson with broadband penetration of approximately 35%."

 

"Morris Broadband generated approximately $13 million in Adjusted EBITDA on an annualized basis for the quarter ended December 31, 2020 (“Q4 LQA”). The purchase price represents a multiple of Morris Broadband’s Q4 LQA Adjusted EBITDA of approximately 24.1x before taking into account estimated run-rate synergies. Including the estimated run-rate synergies that Altice USA expects to realize in full within two years of closing the transaction and adjusting for the present value of anticipated tax benefits, the purchase price represents a multiple of projected 2022 Adjusted EBITDA of 7.4x."

 

https://www.alticeusa.com/news/articles/press-release/corporate/altice-usa-acquire-morris-broadband

[dwy000]

Pre-synergy acquisition price is 24x ebitda.  Post synergy acquisition price is 7.4x.

 

I'd hate to be a Morris employee today because you won't be tomorrow

[Munger_Disciple]

Pre-synergy acquisition price is 24x ebitda.  Post synergy acquisition price is 7.4x.

 

I'd hate to be a Morris employee today because you won't be tomorrow

 

+1

 

It is hard to believe that Morris will have any employees left after the acquisition is completed. Assuming a combined 25% tax rate for Altice, tax benefit is no more than $78M (if the entire $310M purchase price were to be written off immediately). So it means that post-synergy EBITDA of at least $31M vs the current $13M!

 

Perhaps they are taking what Malone calls "Roman" acquisition strategy a bit far.

[KJP]

Pre-synergy acquisition price is 24x ebitda.  Post synergy acquisition price is 7.4x.

 

I'd hate to be a Morris employee today because you won't be tomorrow

 

+1

 

It is hard to believe that Morris will have any employees left after the acquisition is completed. Assuming a combined 25% tax rate for Altice, tax benefit is no more than $78M (if all the $300M were to be written off immediately). So it means that post-synergy EBITDA of at least $31M vs the current $13M!

 

Perhaps they are taking what Malone calls "Roman" acquisition strategy a bit far.

 

Note the press release uses a multiple (7.4x) of "projected" 2022 adjusted EBITDA and the current 89,000 passings have only a 35% broadband penetration rate.  We do not know the following:

 

1) To what extent is 2020 EBITDA suppressed by the costs of building out passings (of course, some of this runs through CapEx rather than P&L) that are not yet generating revenue?

 

2) What is the expected 2022 penetration rate built into the 2022 EBITDA number?  If penetration goes to 50% (perhaps aggressive in that timeframe, but don't know what the competition is), that would be 13,350 additional broadband customers (89 * .15).  If they pay $70/month, that's $11.2 million in additional, very high margin revenue.  (Though if they got to 50% penetration by the end of 2022, all of that wouldn't show up in calendar 2022 itself).

 

3) To what extent does "projected 2022 adjusted EBITDA" include any benefits from additional edgeouts between now and December 2022?

 

All that being said, I too would be nervous if I worked for Morris.

[Munger_Disciple]

1) To what extent is 2020 EBITDA suppressed by the costs of building out passings (of course, some of this runs through CapEx rather than P&L) that are not yet generating revenue?

 

All of this is Capex and not included in EBITDA.

 

2) What is the expected 2022 penetration rate built into the 2022 EBITDA number?  If penetration goes to 50% (perhaps aggressive in that timeframe, but don't know what the competition is), that would be 13,350 additional broadband customers (89 * .15).  If they pay $70/month, that's $11.2 million in additional, very high margin revenue.  (Though if they got to 50% penetration by the end of 2022, all of that wouldn't show up in calendar 2022 itself).

 

50% penetration by 2022 is a fantasy. Just look at Suddenlink's growth rates. Having said that, there is likely to be single digit EBITDA growth by 2022 in Morris's footprint.

 

3) To what extent does "projected 2022 adjusted EBITDA" include any benefits from additional edgeouts between now and December 2022?

 

Highly unlikely. That would require additional capex by Altice and it takes a while to get the extensions built and get customers. Not gonna happen by 2022. Plus it should not be included in the EBITDA numbers for the acquisition valuation anyhow.

[Spekulatius]

Pre-synergy acquisition price is 24x ebitda.  Post synergy acquisition price is 7.4x.

 

I'd hate to be a Morris employee today because you won't be tomorrow

 

+1

 

It is hard to believe that Morris will have any employees left after the acquisition is completed. Assuming a combined 25% tax rate for Altice, tax benefit is no more than $78M (if the entire $310M purchase price were to be written off immediately). So it means that post-synergy EBITDA of at least $31M vs the current $13M!

 

Perhaps they are taking what Malone calls "Roman" acquisition strategy a bit far.

 

The roman's didn't kill everybody after the conquered land, quite the opposite. This is more like a Neutron bomb warfare where you get rid of everything living but keep the buildings intact. I wonder how the first employee hands on (hand's up?) meeting goes.

[KJP]

 

50% penetration by 2022 is a fantasy. Just look at Suddenlink's growth rates. Having said that, there is likely to be single digit EBITDA growth by 2022 in Morris's footprint.

 

3) To what extent does "projected 2022 adjusted EBITDA" include any benefits from additional edgeouts between now and December 2022?

 

Highly unlikely. That would require additional capex by Altice and it takes a while to get the extensions built and get customers. Not gonna happen by 2022. Plus it should not be included in the EBITDA numbers for the acquisition valuation anyhow.

 

I lack your confidence in predicting the future. 

 

For example, Altice claims to be getting to 40% penetration on new edgeouts in just 12 months.  (See, e.g., slide 10:  https://s22.q4cdn.com/118672413/files/doc_presentations/2021/ATUS-Q4-2020-Results-Presentation-vFINAL2.pdf)  I do not know the various vintages of Morris's passings, nor its penetration curve, nor the competition in its footprint, though the press release described it as "rapidly growing" and "very fast growing".  But I believe one could infer from Altice's actual experience scenarios in which broadband penetration in Morris's footprint goes from 35% to 50% (or higher!) in two years, and, of course, scenarios in which it does not.

 

As for what "should not be included in the EBITDA numbers for the acquisition valuation," I was pointing out that, rightly or wrongly, Altice does not appear to be disclosing a post-synergy multiple in the same way that, for example, Cable One disclosed a post-synergy multiple in connection with its recent acquisition.  Thus, we are left trying to understand what they actually said, not what they perhaps ought to have said but did not.  I do not know, for example, how many (if any) additional passings Morris currently has under construction or has permitted nor whether the, for example, 12-month penetration rate of any such passings will be more than, less than, or equal to 40%. 

 

As a coda to this confession of ignorance, I note that the less than a year ago, Altice bought Service Electric's 70,000 passing/30,000 existing broadband customers for $150 million, which is $2,142/passing and $5,000/existing broadband customer.  With Morris, Altice bought 89,000 passings/31,150 broadband customers for $310 million, which is $3,483/passing and $9,951/customer.  Perhaps Altice stole Service Electric or perhaps it badly overpaid for Morris.  Or perhaps there's just a lot of juice left in Morris's current and potential footprint that will begin to show up in 2022.  I don't know what the truth is. 

 

 

 

 

 

[Munger_Disciple]

I lack your confidence in predicting the future.

 

I am not predicting the future; just pointing out the overly optimistic assumptions you are making.