GNCMA - General Communications

[abitofvalue]

Can someone help me with this - it looks the company issued approx 1mm shares between 31st Dec (when it had 37,299 basic shares outstanding per pg 95 of the 10-K) and the filing on Feb 28 (when it had 38,356 shares outstanding per the cover of the 10-K).  I can't seem to find any information on this issuance.  For a company that's been buying back shares this seems strange.  Any one have some insight on this?

 

 

[gfp]

A big chunk of the issuance appears to be from the 1/31 stock grants reported here -

http://www.sec.gov/cgi-bin/own-disp?action=getissuer&CIK=0000808461

 

Those grants will vest over the next couple years.  Not sure what makes up the rest, perhaps there were some shares issued in one of the small acquisitions?

 

There was also an option exercise on 1/2 that appeared to be net share settled, but I don't know if they count the increase in share count as 44,583 or 250,000 for that one.

[gary17]

i emailed them they said

 

The only issuances we have had has been share-based incentives, which are used predominantly for executive compensation.

[abitofvalue]

i emailed them they said

 

The only issuances we have had has been share-based incentives, which are used predominantly for executive compensation.

 

Thanks.

 

They issued 1mm shares?  Wow. Options would only show up in the count if exercised so there must be some type of shares paid out that vested.

 

Thanks for the information.

[moody202]

If you use the mid-point of the guidance numbers you get an EBITDA multiple of 5.5x which is still cheaper than cable cos which trade for 8x to 9x and have lower EBITDA growth rates, the guidance is a 10% EBITDA growth rate, the highest in the industry.

 

Packer

 

Given that GNCWA is half cable half telco, shouldn't the target multiple be lower than cable companies?

 

Also -- What what is the debt amount you are using for EV calculations?

 

 

 

 

[Liberty]

AT&T names 100 cities where it could offer gigabit fiber

 

http://arstechnica.com/business/2014/04/att-copies-google-names-100-cities-where-it-could-offer-gigabit-fiber/

 

(none in Alaska)

[abitofvalue]

To answer the question re:

EV calc --  here is mine:  Market Cap (455) + Debt (1054) + Minority Interest (300) - Cash (45) = 1764

2014E EBITDA = 300

EV / 2014E EBTIDA = 5.9x

 

So clearly there is potential for value here.  6x is a fairly low multiple if one can get comfortable that this is a high quality business.  In terms of FCF however - I am not so sure.  The company is planning on spending approx $170mm in 2014.  Which would suggest FCF of approx ($130mm).  At that FCF the FCF yield is about 8%.  Not bad but nothing to get terribly excited about.  So the question then becomes is $170mm the right number?  Well may be not since they are doing a fair bit of growth cap-ex. 

 

But what is normalized capex for GNCMA? Since 2008 the average Cap-ex is ~$157mm.  That doesn't improve the picture materially.  The minimum capex has been ~$95mm in 2010. Let's say normalized cap-ex is about $130mm.  That would imply a FCF of $170mm.  This gives you a FCF yield close to 10%.  That would be more interesting. But to get to that number, we need to believe that at some point management will turn off the spigot?

 

They are laying the fiber network now, in 2 years they will need to update wireless for 4G / 5G etc.  After that it will be some other next-gen technology. The cable business is one where there always seems to be more investing to get to next gen levels because otherwise the competition might and take your customers.

 

This is a hard one because qualitatively, there should clearly be competitive advantages for GNCMA (as discussed in this thread). But in looking at historical returns the returns aren't really those you would associate with a good / great business. 

 

How did you'll get to some estimate of FCF next year or 2 years out?

 

 

 

 

[APG12]

But to get to that number, we need to believe that at some point management will turn off the spigot?

 

Given that their growth cap-ex spending has actually been quite profitable I don't think we need to believe that management will turn off the spigot.

[LC]

"growth" capex scares me in this industry. either way you slice it, you're selling data delivery to a certain sales territory. the only way growth capex actually causes "growth" is if it can convince the same customer to spend more on data delivery. 

[Packer16]

They have been able to growth cash flow (EBITDA) without share dilution over the past 5 to 10 years while others have had flat cash flow growth at best.

 

Packer

[gary17]

They have been able to growth cash flow (EBITDA) without share dilution over the past 5 to 10 years while others have had flat cash flow growth at best.

 

Packer

 

Yes - but if we look at the amount of capital invested vs new cash flow generated the story isn't as stellar.  Also, the return on asset is comparably lower than other Cable / Telco cos and DTV  --  I agree on valuation but have been wondering if it's always going to be priced lower due to the lower return on asset. 

 

Gary

[LC]

They have been able to growth cash flow (EBITDA) without share dilution over the past 5 to 10 years while others have had flat cash flow growth at best.

 

Packer

 

This is what attracts me to GNCMA. Relatively it has performed quite well.

 

In your opinion, how do you think they were able to grow sales so consistently over the past 10 years?

 

As far as I've seen, they were market leader back in 2004 as well. So I don't think it was just as a result of expanding their network.

 

Do you know if there has been a gradual consolidation of smaller players into the current market oligopoly? I don't see much evidence of this but it makes sense that this would have occurred.

 

I think the real advantage here, and the reason that a decent operator such as GNCMA can earn good returns in this industry is due to a very specific form of customer captivity. The threat of new entrants is very low, and the customer is very much dependent on having service.

 

For example, from the 2004 AR:

ConnectMD Services Expansion. We have developed an agreement with Alaska

Psychiatric Institute to expand our ConnectMD service to provide tele-psychiatry

services to health clinics across the state of Alaska. This new service will

triple the number of communities that have access to clinical staff via a video

link and we believe it will allow for better and more cost-efficient care for

patients. With this service, behavioral health patients in remote areas of

Alaska can now be treated in their own environment, instead of having to travel

to Anchorage for treatment.

 

Most urban and suburban environments would never even think of having this problem. Alaska is a totally different beast in this respect. The "need" for connectivity and the advantages of this network are both magnified. I believe this is a very strong contributor to past 10 years of successful sales growth of GNCMA.

 

Packer, I would love to hear your thoughts on the above.

 

 

[Packer16]

By my calcs the return on IV (EBITDA/BV E & D) for GNCMA is 23% in-line with cable cos CHTR (20%), CMSCA (24%) and it is growing faster than either and selling for a lower multiple.  GNCMA has doubled cash flow per share over the past 5 years and 4x over the past 10 years and the stock price is flat.  The cable cos have had similar or less growth and their stock prices have exploded.  GNMCA is priced like a telco but has IC returns and growth of a cable co.  So is GNCMA a cable co or a telco?

 

Packer

[moody202]

By my calcs the return on IV (EBITDA/BV E & D) for GNCMA is 23% in-line with cable cos CHTR (20%), CMSCA (24%) and it is growing faster than either and selling for a lower multiple.  GNCMA has doubled cash flow per share over the past 5 years and 4x over the past 10 years and the stock price is flat.  The cable cos have had similar or less growth and their stock prices have exploded.  GNMCA is priced like a telco but has IC returns and growth of a cable co.  So is GNCMA a cable co or a telco?

 

Packer

 

If the share price has stayed flat for last 10 years, what is the catalyst now to move the share price?

 

@Packer -- Can you share your calculation for EV. I believe you were stating it as 4.x earlier in the thread.

[Packer16]

I don't know what the catalyst is.  If there was one it would not be trading where it is now.  As to EV, I have calculated GNCMAs look-through EBITDA and adjusted the EV by removing the MI and adding the overage payments to ALSK in excess of 1/3 rd of AWN's EBITDA.  Thus, there is $258m economic EBITDA $295m (midpoint of consolidated EBITDA range) - $110m/3 (we can add the PV of $8.3 million over 4 years of debt (difference between $45m and $110/3)).  This results in an EBITDA multiple of 5.7x and an upside at 8x EBITDA of 133%.  We also have EBITDA growing at 10% per year. 

 

Packer

[yadayada]

how much money do they need to invest to get full coverage in 4g? Also the major hurdle for 4g and especially 5g is phone battery life. All those datapackets coming in and going out suck up power like crazy. Now you could argue there will be some kind of battery breakthrough soon, but I doubt it. They have been saying that for decades. Who wants 5g if it means you gotta recharge your battery twice a day? And who needs faster then 4g anyway, seems to fill most needs already.

 

Seems that the moment 5g becomes viable, you also gotta sell your oil stocks.

[moody202]

Thanks Packer

 

@yadayada where is the 5G specification? I haven't heard of one. Also -- the new phones are much better at battery utilization.  I have LTE iPhone and go through the entire day of good usage without recharging. Also -- every new phone that comes out get better on using low power chips and optimizing battery life. I don't think its as big an issue as it used to be few years back.

[racemize]

Thought that this was interesting from the Comcast deal, in terms of valuation:

 

"All value transfers to be valued at 7.125x 2014 EBITDA(1)"

 

[muscleman]

10 billion right? 2.7 in  net debt. 0.95 bn in ebitda. That would imply roughly 7.7x ev ebitda? Which would imply 1.2 bn$ for GCI. But weren't there some strategic advantages of buying up ziggo with their other holdings? So GCI prob wont get a multiple that high right. allthough at roughly 6x ev ebitda it would still be a double.

 

if ziggo  has more Advantages i dont know exactly. i only want to say there is a lot of interest in the cable Business and the companies pay high Prices.

 

the lowest Point in the valuation for gncma is a double. iam looking more for a 2x or 3x. packer mentioned also before that we can normally value cable co´s around 6-7times ebitda. so gncma would be worth a lot more than today.

 

the valuation Point is a Point of view. iam very positive about this Company, because i have a large margin of safety. if it doubles in two years it is great. if it goes up more, ok i take it and would be more happy. i can sleep well at night.

 

Hi guys, I am new to cable business. Could you please help me with a few questions?

1. How do you define margin of safety here? They trade at over 2x book value, so liquidation value is certainly not the margin of safety here. So what is it?

2. How do I understand the future capex needed to maintain their cash flow? I heard if they want to increase the bandwidth from 5M to 25M, they only need a small amount of capital outlay. Why? Do they need to dig up the ground and put down more cables? That doesn't seem to be cheap. So how do they do it? I am more interested in the stable free cash flow instead of the EV/EBITDA multiple.

3. What is the expected life span of a cable? Can I understand this business like a natural gas pipeline business where they only need to increase the pressure of the compressor to send more natural gas, instead of laying down a wider pipe?

4. Why does 8x EV/EBITDA justify other cable companies?

[yadayada]

I think margin of safety is that they deal in a necesity of life, and they are pretty much the only one who can sell you fast internet in Alaska. And they usually sell it in packages with other things as well. I think it is a bit like commercial real estate in a wealthy neighbourhood. There will always be demand for it. Given the huge investment needed to build these networks, and given that one more player rolling out internet would make almost no return on that huge investment because they would have to compete in price, they are pretty safe.

 

Just look at 2008-09, they even grew ebitda in that period.

[phil_Buffett]

I think margin of safety is that they deal in a necesity of life, and they are pretty much the only one who can sell you fast internet in Alaska. And they usually sell it in packages with other things as well. I think it is a bit like commercial real estate in a wealthy neighbourhood. There will always be demand for it. Given the huge investment needed to build these networks, and given that one more player rolling out internet would make almost no return on that huge investment because they would have to compete in price, they are pretty safe.

 

Just look at 2008-09, they even grew ebitda in that period.

 

yadayada perfectly described it. they are operating in a niche market, and nobody cant come very easy in there. stable Business, People always Need tv, Internet, phone, there is no alternative.

 

 

10 billion right? 2.7 in  net debt. 0.95 bn in ebitda. That would imply roughly 7.7x ev ebitda? Which would imply 1.2 bn$ for GCI. But weren't there some strategic advantages of buying up ziggo with their other holdings? So GCI prob wont get a multiple that high right. allthough at roughly 6x ev ebitda it would still be a double.

 

if ziggo  has more Advantages i dont know exactly. i only want to say there is a lot of interest in the cable Business and the companies pay high Prices.

 

the lowest Point in the valuation for gncma is a double. iam looking more for a 2x or 3x. packer mentioned also before that we can normally value cable co´s around 6-7times ebitda. so gncma would be worth a lot more than today.

 

the valuation Point is a Point of view. iam very positive about this Company, because i have a large margin of safety. if it doubles in two years it is great. if it goes up more, ok i take it and would be more happy. i can sleep well at night.

 

Hi guys, I am new to cable business. Could you please help me with a few questions?

1. How do you define margin of safety here? They trade at over 2x book value, so liquidation value is certainly not the margin of safety here. So what is it?

2. How do I understand the future capex needed to maintain their cash flow? I heard if they want to increase the bandwidth from 5M to 25M, they only need a small amount of capital outlay. Why? Do they need to dig up the ground and put down more cables? That doesn't seem to be cheap. So how do they do it? I am more interested in the stable free cash flow instead of the EV/EBITDA multiple.

3. What is the expected life span of a cable? Can I understand this business like a natural gas pipeline business where they only need to increase the pressure of the compressor to send more natural gas, instead of laying down a wider pipe?

4. Why does 8x EV/EBITDA justify other cable companies?

 

 

stable cashflow and growing.  and to your question muscleman with the ev Ratio. i think the market is at a high Level so Investors and companys are looking for companies which have high and stable cashflow and the cable industry is excactly this. so they are buying and therefore the multiple is high.

[muscleman]

I think margin of safety is that they deal in a necesity of life, and they are pretty much the only one who can sell you fast internet in Alaska. And they usually sell it in packages with other things as well. I think it is a bit like commercial real estate in a wealthy neighbourhood. There will always be demand for it. Given the huge investment needed to build these networks, and given that one more player rolling out internet would make almost no return on that huge investment because they would have to compete in price, they are pretty safe.

 

Just look at 2008-09, they even grew ebitda in that period.

 

yadayada perfectly described it. they are operating in a niche market, and nobody cant come very easy in there. stable Business, People always Need tv, Internet, phone, there is no alternative.

 

 

10 billion right? 2.7 in  net debt. 0.95 bn in ebitda. That would imply roughly 7.7x ev ebitda? Which would imply 1.2 bn$ for GCI. But weren't there some strategic advantages of buying up ziggo with their other holdings? So GCI prob wont get a multiple that high right. allthough at roughly 6x ev ebitda it would still be a double.

 

if ziggo  has more Advantages i dont know exactly. i only want to say there is a lot of interest in the cable Business and the companies pay high Prices.

 

the lowest Point in the valuation for gncma is a double. iam looking more for a 2x or 3x. packer mentioned also before that we can normally value cable co´s around 6-7times ebitda. so gncma would be worth a lot more than today.

 

the valuation Point is a Point of view. iam very positive about this Company, because i have a large margin of safety. if it doubles in two years it is great. if it goes up more, ok i take it and would be more happy. i can sleep well at night.

 

Hi guys, I am new to cable business. Could you please help me with a few questions?

1. How do you define margin of safety here? They trade at over 2x book value, so liquidation value is certainly not the margin of safety here. So what is it?

2. How do I understand the future capex needed to maintain their cash flow? I heard if they want to increase the bandwidth from 5M to 25M, they only need a small amount of capital outlay. Why? Do they need to dig up the ground and put down more cables? That doesn't seem to be cheap. So how do they do it? I am more interested in the stable free cash flow instead of the EV/EBITDA multiple.

3. What is the expected life span of a cable? Can I understand this business like a natural gas pipeline business where they only need to increase the pressure of the compressor to send more natural gas, instead of laying down a wider pipe?

4. Why does 8x EV/EBITDA justify other cable companies?

 

 

stable cashflow and growing.  and to your question muscleman with the ev Ratio. i think the market is at a high Level so Investors and companys are looking for companies which have high and stable cashflow and the cable industry is excactly this. so they are buying and therefore the multiple is high.

 

 

Thank you! Could anyone answer the other two questions please?

2. How do I understand the future capex needed to maintain their cash flow? I heard if they want to increase the bandwidth from 5M to 25M, they only need a small amount of capital outlay. Why? Do they need to dig up the ground and put down more cables? That doesn't seem to be cheap. So how do they do it? I am more interested in the stable free cash flow instead of the EV/EBITDA multiple.

3. What is the expected life span of a cable? Can I understand this business like a natural gas pipeline business where they only need to increase the pressure of the compressor to send more natural gas, instead of laying down a wider pipe?

 

[yadayada]

These cables last a long time, again comparable with buildings I think. Also when they install fibre, they only do it in the choke points. Cables running to houses are often wide enough to support a lot of data I think. But there are choke points, sort of like high ways and roads.

 

I read this somewhere in an article from someone who seemed to know his shit. So take that fwiw. It does sound plausible tho.

 

Regarding maintenance. What makes this attractive is leverage I think. For example 300m ebitda - 70m interest - 140m capex (according to guidance, historically they have been under this nr) - 15m taxes (?) is like 75m in FCF. But i think capex and taxes are lower. I think packer said it was more like 100m.

 

But if they grow ebitda to like 350m over a few years, it wont affect capex much. Would just mean higher utilization So that would mean a lot of that ebitda increase goes straight to bottom line. Also paying off debt would mean a big difference 350 -60m interest - 140m capex - 15 to 30m in taxes (?) = 120-135m in FCF?

 

Nowhere near an expert so dont know how accurate those numbers are. But you can see that paying off a little bit of debt, growing ebtida a little bit organically (like they have proven already to do so) and paying off some debt, could make a big difference in how much cash they will generate.

 

And if it turns out they dont need to do heavy expanding, capex could be closer to 100-120m. I think I saw with other cable company's that maintenance capex is between 2/3 and 3/4 of their regular depreciation charge? So taht would mean a big increase in FCF.

[racemize]

With regard to maintenance cap-ex, ALSK provided a decent model when they were in their overleveraged phase, which can be applied here.  That was the basis for Packer's maintenance cap-ex in his FCF calculations earlier in the thread, I believe.

[OracleofCarolina]

http://finance.yahoo.com/news/gci-reports-first-quarter-2014-231602436.html

 

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