HCOM - Hawaiian Telcom

[Packer16]

You can calculate churn from there quarterly subscriber numbers.  The one thing that is happening is they are replacing poorer quality phone revenues with higher quality video/data customers.  They are not a growth machine but they are not priced that way either.  If over time the legacy customer declines fall off then you may see some growth.

 

Packer

[kab60]

Just a couple of notes post FY2016 results;

 

I have them trading around 4,5x EV/Ebitda (same as Alsk but no growth). They don't give guidance, so not sure what to expect FY17, but their major capex spending seems to be behind them.

 

More interestingly, are these guys putting themselves up for sale? They have two major holders owning 45 pct. of the stock (Black Diamon and Twin Haven). BD got a director on board in February 2016 who has experience from leveraged transactions, in November 2016 they increased the compensation in case there's a change of control (https://www.sec.gov/Archives/edgar/data/1487986/000155837017001772/hcom_currentfolioproxy.htm, page 33), and on the most recent call the CEO admitted that this is a scale game;

 

"Well, I think, we’ve got, Steve, a lot of growth opportunities right here with we have the right products to continue to grow there and increase the shareholder value. We certainly understand that its businesses scale so we continue to look for opportunities and closely monitor what's going on in the industry, both domestically and internationally, as it may make sense for -- and to be part of a larger company, either through acquisition or through being acquired"

 

I haven't looked into it, but they're also finalizing a refi which will save them some interest cost and extend maturities but from the CC it sounds like it also gives them the possibility of doing M&A (I don't think their two major holders would like them to buy stuff when they trade at 4,5x EBITDA themselves, so I only think a sale makes sense).

 

No position since I haven't gotten comfortable with their challenges just yet (legacy wireline biz declining faster than new biz).

[Gamecock-YT]

Just a couple of notes post FY2016 results;

 

I have them trading around 4,5x EV/Ebitda (same as Alsk but no growth). They don't give guidance, so not sure what to expect FY17, but their major capex spending seems to be behind them.

 

More interestingly, are these guys putting themselves up for sale? They have two major holders owning 45 pct. of the stock (Black Diamon and Twin Haven). BD got a director on board in February 2016 who has experience from leveraged transactions, in November 2016 they increased the compensation in case there's a change of control (https://www.sec.gov/Archives/edgar/data/1487986/000155837017001772/hcom_currentfolioproxy.htm, page 33), and on the most recent call the CEO admitted that this is a scale game;

 

"Well, I think, we’ve got, Steve, a lot of growth opportunities right here with we have the right products to continue to grow there and increase the shareholder value. We certainly understand that its businesses scale so we continue to look for opportunities and closely monitor what's going on in the industry, both domestically and internationally, as it may make sense for -- and to be part of a larger company, either through acquisition or through being acquired"

 

I haven't looked into it, but they're also finalizing a refi which will save them some interest cost and extend maturities but from the CC it sounds like it also gives them the possibility of doing M&A (I don't think their two major holders would like them to buy stuff when they trade at 4,5x EBITDA themselves, so I only think a sale makes sense).

 

No position since I haven't gotten comfortable with their challenges just yet (legacy wireline biz declining faster than new biz).

 

Pretty sure it was a pointed question he was asked, don't think he randomly said they were looking to buy/sell. But makes sense that consolidation would be in the cards at some point, probably more a sell candidate given the PE guys you mentioned. Should be throwing off a good amount of cash once the capex for the undersea cable is completed/up and running in the middle of this year.

 

Also, with their debt restructuring, the covenants now allow for dividends and share buybacks. Not to exceed $3MM in 2017 and $7MM per year beyond.

[Packer16]

Remember this team ran Surewest to sell the company to Consolidated Communication using pretty much the same playbook a few years ago.

 

Packer

[Munger_Disciple]

Packer,

 

One thing that bothers me about HCOM is that despite heavy fiber upgrade to consumers, FY 2016 consumer data lines are down by 2.1% compared to FY 2015 and consumer data revenue is down by 11.3% YoY. Is this due to competition from Charter (Time Warner Cable)? On the positive side, video revenue has grown YoY and business data revenue also grew. But I am not sure video revenue is sustainable: they don't have the scale of Charter so programming costs are higher, and they will be impacted by the secular video shift towards OTT. So I see decrease in data connections and revenues as a big negative. Perhaps this may be a reason why it is trading at a low valuation.

[Alex.N.B]

https://globenewswire.com/news-release/2017/07/10/1041941/0/en/Hawaiian-Telcom-Enters-into-Definitive-Agreement-to-Merge-with-Cincinnati-Bell.html

 

[txvalue]

$30.75 buyout, choice of cash or stock from the sounds of it.

[Gamecock-YT]

A little lower than full value. Had it in the $36-$38 range. Plus they're going to have big time FCF after their cable is up and running this upcoming Q