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LVLT - Level 3


doc75

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Southeastern wasn't selling out for fundamental reasons and their appointed board members(2) have stayed. The stock was added to the S&P and its $16bn mkt cap didn't sit well in its small cap fund. The large cap fund was also down 21% YTD earlier this week so with Level 3 as its number one position that was up most of this year was tapped as a source of funds. Level 3 remain by far their largest position.

 

Not that they have anywhere near the investment chops but Govt of Singapore, the largest shareholder with near perfect information with 3 people on the board, has added $0.5bn this year to their stake with ~5 purchases in the past 2 weeks at prices between $44-47.50.

 

 

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  • 1 year later...
Guest longinvestor

Looks like a BIG MERGER is coming LVLT's way:

 

http://www.reuters.com/article/idUSFWN1CX1F4

 

This is likely not the last move on this. This smells like legacy 2.0, with two of the more advanced  US fiber backbones, Qwest & LVLT combining. Word has it that emerging broadband players (think GOOG) have a big interest in LVLT's global fiber assets. We will see if this is so. Interesting times, smells like payday.

 

 

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The consolidation that Crowe was talking about when he ran the ship finally is taking place. 

 

This sure is an interesting time for LVLT.  With next week's earnings coming out and free cash flow is finally piling up, management has to do something with all that free cash.  Can't sit on them forever...

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  • 2 months later...
Guest longinvestor

2017 is the final year with the ticker LVLT.

 

Those who own this, what are your plans past September?

- take your cash, leave the CTL shares alone

- roll cash back into CTL shares

- sell and get out

- buy more CTL

-....

 

If you continue to hold on, what is your new investment thesis in the combined entity?

- Faster growing enterprise business

- Large asset mix to serve rural USA

- Regulations are no longer an anchor - we become an RBOC of sorts.

 

- Someone bigger will swallow up the combined company?

 

The roughly 9% dividend payout is quite unfathomable given where we have come from; If this happens as promised, it gives us pause to think through! For the long termers, what's a few more years, ha? Tomorrow has always been better than today with this pos. Not complaining but a statement of fact. This has been one hell of a slow grind but has worked out alright for me.

 

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First of all my honorable tribute to Longinvestor, he is the reason why i joined the corner today and here is my first post:

 

I started to invest in LVLT in 2001 and over the years I increased the position, most in 2014 and 2015.

 

When the detailed news about the acquisition came out, LVLT surged and CTL tanked, till CTL had a price level with a dividend range of nearly 10%. 22 US$ to 2,16 annual dividend. This was the moment when i also started to add CTL. Over the time - till now - i added app the same amount of money in CTL, that i have invested in LVLT. I think the whole position is hedged in some way (? ::)) , for the case the acquisition will fail.

 

I hope that everything will work out and i plan for this case to stay invested in the new formed company. CTL and LVLT announced they will mantain the annual dividend. I think they are able to do so this year and in the future as well, maybe even they will pay out more...

 

Why: In the future the whole dividend amount to pay out is app. 2,4 B $ per year. (CTL payed out 1,2 B in 2015, so concerning the future company 51:49:CTL:LVLT its app 2,4B$). The combined company is strong enough to do so. LVLT (which never paid out any $ dividend in the past) will bring in 1,1 B $ FCF. The synergies are estimated app 0,9 B $ and further CTL did share buybacks per year of app. 0,8 B $ in 2013/14/15. So to my mind .... no problem to stem the 2,4 B$.

 

If it will become more and more clear that the acquisition will work out and that the dividend could be paid, i expect that the price of CTL will surge till we have a dividendrate of maybe 6 or 7 %. (compare dividendrates of T and VZ) So CTL price for Q3 / end of 2017 could be around 31 to 36 $. 38 % upside potential to a price of 26 $ now. Concerning my own buying prices of LVLT and CTL i have now an avg dividendrate of 9,5 % on my whole package..a great income-investment ;D

 

Now the negative aspect: shrinking revenue at CTL and stagnating revenue at LVLT. Concerning LVLT there were several announcements that they expect the revenue increasing over time.. so we will see.. If that happens LVLT and CTL will surge even more :) to my opinion.

 

Further - in summary - the whole company seems cheap to me, with a marketcap of 35B $ combined. I have in my mind that just LVLT invested 90 B $ for their fiber net (true?).  Marketcap of 35B$ compared to 4B$ from FCF and synergies, partly used for dividends/buybacks seems very attractiv to me.

 

I wait for your comments on my view...

 

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Guest longinvestor

First of all my honorable tribute to Longinvestor, he is the reason why i joined the corner today and here is my first post:

 

I started to invest in LVLT in 2001 and over the years I increased the position, most in 2014 and 2015.

 

When the detailed news about the acquisition came out, LVLT surged and CTL tanked, till CTL had a price level with a dividend range of nearly 10%. 22 US$ to 2,16 annual dividend. This was the moment when i also started to add CTL. Over the time - till now - i added app the same amount of money in CTL, that i have invested in LVLT. I think the whole position is hedged in some way (? ::)) , for the case the acquisition will fail.

 

I hope that everything will work out and i plan for this case to stay invested in the new formed company. CTL and LVLT announced they will mantain the annual dividend. I think they are able to do so this year and in the future as well, maybe even they will pay out more...

 

Why: In the future the whole dividend amount to pay out is app. 2,4 B $ per year. (CTL payed out 1,2 B in 2015, so concerning the future company 51:49:CTL:LVLT its app 2,4B$). The combined company is strong enough to do so. LVLT (which never paid out any $ dividend in the past) will bring in 1,1 B $ FCF. The synergies are estimated app 0,9 B $ and further CTL did share buybacks per year of app. 0,8 B $ in 2013/14/15. So to my mind .... no problem to stem the 2,4 B$.

 

If it will become more and more clear that the acquisition will work out and that the dividend could be paid, i expect that the price of CTL will surge till we have a dividendrate of maybe 6 or 7 %. (compare dividendrates of T and VZ) So CTL price for Q3 / end of 2017 could be around 31 to 36 $. 38 % upside potential to a price of 26 $ now. Concerning my own buying prices of LVLT and CTL i have now an avg dividendrate of 9,5 % on my whole package..a great income-investment ;D

 

Now the negative aspect: shrinking revenue at CTL and stagnating revenue at LVLT. Concerning LVLT there were several announcements that they expect the revenue increasing over time.. so we will see.. If that happens LVLT and CTL will surge even more :) to my opinion.

 

Further - in summary - the whole company seems cheap to me, with a marketcap of 35B $ combined. I have in my mind that just LVLT invested 90 B $ for their fiber net (true?).  Marketcap of 35B$ compared to 4B$ from FCF and synergies, partly used for dividends/buybacks seems very attractiv to me.

 

I wait for your comments on my view...

 

So you're holding for good reason.

 

My investment tenure and cost basis in LVLT mirrors yours, so the rationale is also similar. Yes, the dividend rate is unbelievably attractive. At a minimum, if they keep the $2.16 divvy going for a couple of years, it allows time for an orderly exit. I was planning an orderly exit from LVLT starting 2018 even without this merger deal. The primary risk I see is that they screw up the integration. This is much bigger than they have dealt with in the past. They both have some history of getting the cost side right in prior m&a but not the market side. Neither has anything to show for. 

 

All that said, I'm a better investor now than when I bought into LVLT, so I have an open mind. If there is a better place to move the money to, it will move. Like BRK at <1.3xBV again. So, my perfect scenario is, soon after the merger there is substantial hype over the 9% divvy, CTL stock goes up 40% from here and BRK gets beaten down to below 1.3x BV. all at the same time :-) Make that happen, Sir Market!

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THX for comments and the link.

 

Why do you plan an exit of LVLT in 2018 ?

 

I see a potential, that the new formed company will be target of an acquisition. BRK ?  ;D With Charter Com they are "not far away" from LVLT in a way ? In the past there were some connections between Buffett and LVLT (Kiewit, Walter Scott, 2002 investment + announced supportive statement)

 

For BRK I expect also a big upside potential in 2017, can be around 30 to 35 % as well (Trump corp tax reform>> deferred tax + adding an elephant + Operative profit + overweight of already massiv surged bankinvestments). But I am already overloaded with BRK, i have 51 % of my money inside...probably too big part.. ?

 

 

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Guest longinvestor

THX for comments and the link.

 

Why do you plan an exit of LVLT in 2018 ?

 

I see a potential, that the new formed company will be target of an acquisition. BRK ?  ;D With Charter Com they are "not far away" from LVLT in a way ? In the past there were some connections between Buffett and LVLT (Kiewit, Walter Scott, 2002 investment + announced supportive statement)

 

For BRK I expect also a big upside potential in 2017, can be around 30 to 35 % as well (Trump corp tax reform>> deferred tax + adding an elephant + Operative profit + overweight of already massiv surged bankinvestments). But I am already overloaded with BRK, i have 51 % of my money inside...probably too big part.. ?

 

Investing is putting away money today (forgo consumption) to have more money (purchasing power) in the future. Starting not in 2018. That is my plan, willing to change as new facts emerge.

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2 more statements supporting the view that the CTL dividendrate of 8,4 % (today) will be sustainable:

 

JP Morgan Analyst

http://www.cnbc.com/2017/01/03/jpmorgan-upgrades-telecom-stock-centurylink.html

 

Mason Hawkins: Longleaf Partners / Southeastern Asset Management

http://www.insidermonkey.com/blog/billionaire-mason-hawkins-and-his-teams-thoughts-on-alphabet-centurylink-more-495765/

 

Note: During Q3 2015 and in Q1,2,3 2016 Longleaf and Southeastern reduced their holdings in LVLT  :P

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  • 8 months later...
Guest longinvestor

So this is it for LVLT. The ticker doesn't exist any more. I've been in this for such a long time, I actually feel relieved that it's over.

 

How have I done with my money? Not bad at the end at all, I've managed to make this a ~10% time weighted return through all the ups and downs (mostly downs). It could have well been a zero. I've learned a ton about how not to invest from holding this for the long term. There's much wisdom in avoiding the too hard stuff.

 

Under CTL, nothing appears to have changed; it's off to a rocky start. Everyone's fixated on the continuance of the dividend or not. Integration is a big deal I believe. Churn has always been a big thing, will continue to be so.

 

The combined network is attractive, without doubt the most advanced fiber footprint in the US at least. Take a look at the global reach as well. They literally have sewn up the entire world; It is great irony that the DOJ actually imposed conditions of some intercity dark fiber disposition. Apparently some(unknown) competitor used the fed as an agent to force a sale. Wish they monetize that well, that would be a first for them. Oh btw, Comcast has an IRU  with Level (3) that runs out in 2024.   

 

Going to watch CTL from the sidelines. The cash portion of the deal stays with me, ha. 

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