Packer16 Posted April 23, 2013 Share Posted April 23, 2013 One of the two publicly Alaskan telecom providers. GNCMA provides TV, phone, internet and wireless communications services. What is impressive is they the only US telco to increase organic revenues and cash flows over the past 5 years. The declining telco portion of the business is only 15% of revenues with data and video representing over 50% of revenues and wireless the remaining 35%. They are combining their wireless properties with ALSK to compete against AT&T and Verizon. The CEO is a student of John Malone and started GNCMA from scratch. Management bonuses are tied the EBITDA and FCF growth. It sells for 5.0x EBITDA which is cheap for a cable + operator. SureWest and smaller operator who had a larger telco component was purchased earlier last year for 6.3x EBITDA. If that multiple is applied to GNCMA it implied a 90% upside. Packer Link to comment Share on other sites More sharing options...
alpha231616967560 Posted April 23, 2013 Share Posted April 23, 2013 I think that this idea has some potential for sure. I'm not entirely convinced that long GNCMA is the best way to express the potential though. Packer, what do you think about the situation with ALSK and Verizon, i.e. that Verizon bought a big chunk of land right behind ALSK's headquarters (good write-up on that situation here: http://goo.gl/Fhx7I ). It seems like there are a few different ways this could play out, one likely one being that Verizon acquires one or both of ALSK and GNCMA. There is a good natural moat in the development of infrastructure in Alaska and a higher than normal use of communication services. Combine that with a couple of comparatively cheap telecoms and it is an interesting situation... Link to comment Share on other sites More sharing options...
Packer16 Posted April 23, 2013 Author Share Posted April 23, 2013 An interesting opportuntity but GNCMA is in a better negotating position than ALSK (who still is in financial distress). Packer Link to comment Share on other sites More sharing options...
alpha231616967560 Posted April 23, 2013 Share Posted April 23, 2013 Yes, for sure I agree. ALSK is in a pretty weak financial state presently. Do you happen to know if GNCMA and ALSK have any binding agreements regarding AWN and future sale? Seems that it could become more difficult for GNCMA If Verizon or AT&T bought ALSK. Link to comment Share on other sites More sharing options...
LC Posted April 23, 2013 Share Posted April 23, 2013 An interesting opportuntity but GNCMA is in a better negotating position than ALSK (who still is in financial distress). Packer I'm reading through the filings now, they note that ALSK will be using all the $100m proceeds to pay down debt/increase cash reserves. Link to comment Share on other sites More sharing options...
LC Posted April 29, 2013 Share Posted April 29, 2013 Did a quick back-of-the-envelope 10 year summary of operations: Operating cash produced: $1,275 Capital investment: $1,299 Share repurchases: $245 (reduced shares outstanding by 25% over 10 years) I like how GNCMA has levered up to buyback shares versus paying dividends. Provided they retain their customers, they can lever up a bit more (especially in this low interest rate environment). Although I'm not sure that's the best move if they are trying to shop themselves (or compete with) Verizon. The AWN deal looks like an economically smart deal. ALSK starts digging itself out of a financial bind, GNCMA increases its wireless coverage. But Packer...can you comment on the cash flows of the deal? My understanding is that both companies surrender their wireless assets (and revenues), then are paid by AWN per the terms of the deal? I see about $30-40MM flowing to GNCMA from AWN over the first 4 years, however GNCMA would lose its current $60MM in wireless EBITDA, therefore the deal is dilutive? The Seeking Alpha write up previously posted made a great case for Verizon to acquire ALSK. However that has not happened...in the meantime, ALSK and GNCMA have "sold" their wireless assets to AWN. Perhaps a deal is in order to sell AWN to Verizon, after ALSK extracts cash up front to whittle down its debt, and then leaves GNCMA with the majority of the upside from the sale of AWN? Then VZ can enter the marketplace solely as a wireless provider, while GNCMA/ALSK can continue to provide landline/television service. Link to comment Share on other sites More sharing options...
Packer16 Posted April 29, 2013 Author Share Posted April 29, 2013 Both ALSK and GNCMA give different EBITDA estimates. ALSK @ $120m and GNCMA @ $127m plus $30 m of synergies. A portion of the AWN is roaming which may be lost if VZ enters the market. My initial take on AWN was defensive one to prevent VZ from buying ALSK. However, together they make a nice acquisition target for VZ as VZ doesn't have to build infrastructure and will control 2/3 rds of the market, AT&T will still have 33%. In addition, this deal will delever ALSK nicely and provide them some powder to expand their broadband service. If ALSK bonds rally to par I think the stock will do nicely. Packer Link to comment Share on other sites More sharing options...
LC Posted April 29, 2013 Share Posted April 29, 2013 Both ALSK and GNCMA give different EBITDA estimates. ALSK @ $120m and GNCMA @ $127m plus $30 m of synergies. A portion of the AWN is roaming which may be lost if VZ enters the market. My initial take on AWN was defensive one to prevent VZ from buying ALSK. However, together they make a nice acquisition target for VZ as VZ doesn't have to build infrastructure and will control 2/3 rds of the market, AT&T will still have 33%. In addition, this deal will delever ALSK nicely and provide them some powder to expand their broadband service. If ALSK bonds rally to par I think the stock will do nicely. Packer Very interesting...if AWN is the target of VZ's entry, it seems like ALSK has better exposure from a risk/reward point of view? Their market cap is 1/5th of GNCMA's yet they control 1/3rd of AWN. Link to comment Share on other sites More sharing options...
Packer16 Posted April 29, 2013 Author Share Posted April 29, 2013 If that is VZ's intention but I don't know. In a standalone scenario, GNCMA is in a much better position than ALSK. If the market thought this was the case then the ALSK bond would trade near par so the purchase AWN scenario is not anticipated by the market but I think it is a reasonable scenario. Packer Link to comment Share on other sites More sharing options...
alpha231616967560 Posted April 29, 2013 Share Posted April 29, 2013 I can see the value in GNCMA, and I see some potential for a media moat in their expanding content offerings. I am stuck on how much of a wildcard Verizon is at present. They are reportedly building out their own towers there over the past two years, so perhaps an Alsk buyout is not imminent even though it seems to make sense. Given either scenario, I'm just not sure how much Verizon will hurt GNCMA established business. Seems like it is a bit of a pain for Alaskans to work with Verizon now vs. GNCMA. I also like the share repurchase strategy. Seems like it and the uncertainty with Verizon / AT&T has kept the stock cheap. Link to comment Share on other sites More sharing options...
tombgrt Posted November 3, 2013 Share Posted November 3, 2013 With current total debt at almost $1b and equity value at $386m, GNCMA is trading at around 5.5 X EBITDA (not counting the effects of AWN) correct? Wireless EBITDA was around $60m for GNCMA and almost $70m for ALSK in 2011. So if capex is $40m that leaves $120m in FCF. Year 1 and 2 GNCMA gets 4% management fee before distributions so say $4-5m, double that after the first 4 years. Then $50m for ALSK, less later and 1/3th after 4 years. Does that really leave almost $70m for GNCMA? I understand synergies will take time and VZ coming in but still. Packer, do you expect GNCMA to continue growing EBITDA at its current pace? Regardless the stock seems cheap. Link to comment Share on other sites More sharing options...
Packer16 Posted November 3, 2013 Author Share Posted November 3, 2013 I think EBITDA will be in the $290 to $300 range with $30m synergies. This based upon the total run rate EBITDA ($62.1 m*4) less wireless EBITDA ($14.3m*$) plus 2/3rds the AWN EBITDA ($100m) plus $5 m management fee. Total EBITDA this year is closer to $260m. Analyst expect a $290m 2015 number before AWN. I believe your calculations are correct. The upside for AWN is VZ backhaul and continued VZ roaming. They also closed on their TV station buy. This will make them a premier Alaska content provider. This stock is still cheap as it has not advanced like many stocks have this year. I think this is less than a 50 cent dollar (possibly a 30 cent dollar of you apply a cable co multiple - which I think is appropriate). Packer Link to comment Share on other sites More sharing options...
tombgrt Posted November 3, 2013 Share Posted November 3, 2013 Thanks Packer, I had the same conclusions. We'll see when the market comes to its senses. In the meantime I'm quite happy to buy more. Link to comment Share on other sites More sharing options...
gary17 Posted November 3, 2013 Share Posted November 3, 2013 Is FCf after interest expense or just after cap ex.... Thx Link to comment Share on other sites More sharing options...
Packer16 Posted November 3, 2013 Author Share Posted November 3, 2013 At this point there is very little interest expense associated with AWN. From GNCMA's perspective the interest is pass through as the interest is paid to GNCMA who then pays it to its debt holders. Packer Link to comment Share on other sites More sharing options...
gary17 Posted November 3, 2013 Share Posted November 3, 2013 So based on Tom's number that's 70M or so available for dividend or share buy back.... An implied yield of 18%!' Seems fairly good. Link to comment Share on other sites More sharing options...
Packer16 Posted November 3, 2013 Author Share Posted November 3, 2013 That assumes no wireless roaming revenue decline of which there will be and no VZ backhaul of which there will be. So how close this is based upon a tradeoff of declining roaming revenue versus increasing backhaul revenue. Packer Link to comment Share on other sites More sharing options...
gary17 Posted November 3, 2013 Share Posted November 3, 2013 Thanks Packer. I trust by roaming we mean data roaming ... AlSk noted voice roaming is still through AWN , but that of course has less contribution to the ebitda Anand Vadapalli - President and CEO Yes. And so the question was, if I could speak to the Verizon Wireless rollout. Verizon acquired the 700 megahertz spectrum, 4G spectrum in the third quarter of 2010. They had an obligation under the spectrum acquisition to cover about 45% of Alaska by July 2013. Based on the build out that they have done in the state, they have probably met that threshold. It’s a 4G data network only. They’ve done that up couple of months ago. There is no voice on that network obviously. So voice network or voice services for Verizon customers coming into Alaska, they continue to roam on the AWN network We -- we do not know when Verizon will be in the retail market. It appears to be delayed compared to what we thought -- where we thought they would be. But we -- that’s just our point of view. We have no visibility into when they plan to be in the -- in the retail market. Link to comment Share on other sites More sharing options...
gary17 Posted November 6, 2013 Share Posted November 6, 2013 Be interesting to see how the Internet will have an impact on the cable TV business over the long term - I wonder what people's thoughts are on this. http://www.bnn.ca/News/2013/11/5/Rogers-lays-off-94-in-media-division.aspx Link to comment Share on other sites More sharing options...
no_free_lunch Posted November 6, 2013 Share Posted November 6, 2013 It will definitely be disruptive. If you look at the charter board, I think that was the spot where there were some discussion on the topic. At the end of the day, I don't know how it all shakes out but you need the telecom companies fibre lines to get the content to the user. So as long as they don't overbuild these companies should adapt and do okay. From my viewing of the malone interviews on charter that is sort of the impression that i got. This is why Malone wants the industry to consolidate ahead of time. Link to comment Share on other sites More sharing options...
zippy1 Posted November 6, 2013 Share Posted November 6, 2013 Q3 out. http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/gncma-general-communications/10/?action=post;last_msg=139742 November 6, 2013, Anchorage AK - General Communication, Inc. ("GCI") (GNCMA) today reported its third quarter 2013 results with consolidated revenues of $220 million, an adjusted EBITDA of $79 million, and net income of $9 million or $0.22 per diluted share. These results reflect the consolidation of the Alaska Wireless Network ("AWN") transaction, which was effective July 23, 2013. For the third quarter of 2013, revenue increased $42 million or 23 percent over the third quarter of 2012 revenue of $178 million. Adjusted EBITDA increased $19 million or 32 percent over the third quarter of 2012 EBITDA of $59 million. Net income increased 141 percent compared to third quarter of 2012 net income of $4 million. Link to comment Share on other sites More sharing options...
jwfm1985 Posted November 20, 2013 Share Posted November 20, 2013 Been a slight pullback here - bought some at 9.50. Packer how do you feel about GNCMA at these prices? Link to comment Share on other sites More sharing options...
tombgrt Posted November 25, 2013 Share Posted November 25, 2013 Should have done it earlier but today I sold the rest of my ALSK position in favor of more GNCMA. Bigger, safer, cheaper when accounting for growth, better proven management, building a bigger moat, ... Link to comment Share on other sites More sharing options...
Guest valueInv Posted November 30, 2013 Share Posted November 30, 2013 Both ALSK and GNCMA give different EBITDA estimates. ALSK @ $120m and GNCMA @ $127m plus $30 m of synergies. A portion of the AWN is roaming which may be lost if VZ enters the market. My initial take on AWN was defensive one to prevent VZ from buying ALSK. However, together they make a nice acquisition target for VZ as VZ doesn't have to build infrastructure and will control 2/3 rds of the market, AT&T will still have 33%. In addition, this deal will delever ALSK nicely and provide them some powder to expand their broadband service. If ALSK bonds rally to par I think the stock will do nicely. Packer What about anti trust issues? Link to comment Share on other sites More sharing options...
Packer16 Posted November 30, 2013 Author Share Posted November 30, 2013 There may be some but VZ would be buying infrastructure assets with AWN and would have to let others use it some form similar to the agreement between ALSK and AWN. There are four competitors in Alaska now (VZ, AT&T, ALSK and GNMCA) and in theory moving the infrastructure assets around does lead to a lessening of the limited competition there is. It may increase competition because a national player has good scale in ALSK. Packer Link to comment Share on other sites More sharing options...
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