GNCMA - General Communications

[yadayada]

just curious, what is your largest position?

[west]

The transition is going to happen overtime with a decline of 10% per year on a small amount of revenues.  They have and will receive grants to expand network which should result in more revenue and EBITDA they would not otherwise have.  I think it will be neutral in terms of impact due to expanding network and up to date service offering.  Where it may be more of an issue with telcos who  are not expanding the network or are not providing broadband services.  In terms of analysts, GNMCA is only followed by a few smaller firms.  GNMCA is my second largest position about 10% of the portfolio so it is a material position.

 

Packer

 

Thanks Packer.  I'll step back and try to reassess what's happened so far with the USF to CAF transition, see what the effects are likely to have been so far, and see what remains in the transition.  (After all, thinking about it, isn't most of the glide down already done and in effect?)  That will probably give me a clear enough idea on how much I need to worry about knowing all the details of the CAF.

 

I was trying to figure everything out I could about it, but maybe that's not that necessary.

 

[west]

Does anyone know where I can get a hold of the pre-2013 conference call transcripts?  Seeking Alpha only has 2013's and 2008's.  TIA.

[hardcorevalue]

i've got them going back to March 08. PM me your email and which ones you want.

[yadayada]

http://www.wkrb13.com/markets/314013/insider-selling-general-communication-ceo-sells-41256-shares-of-stock-gncma/

that kinda worries me. The guy made like 7 million$ in the last few years. So unless he spends extremly large, not exactly a reason to sell.

 

I guess the one big problem I have with this one is that ebitda is high. But costs of mainaining and upgrading are also high, which is why ebitda is high. They can charge more. Which is also why internet is so slow and expensive in alaska.

 

I still own some tho.

 

Also if analysts think they can grow ebitda by 40% by 2018, why the hell are price targets so low?

[Kuhndan]

Looks like total shares sold less than 5 percent of his holdings.

[west]

Also if analysts think they can grow ebitda by 40% by 2018, why the hell are price targets so low?

 

Where are you seeing said price targets?

[west]

http://www.kpmg.com/US/en/IssuesAndInsights/ArticlesPublications/Documents/universal-service-brochure.pdf

 

The new regulation (caf versus usf) seems to favor the most efficient. Another point: who will pay if subventions abatte, the carrier or the consumer ?

 

Thanks.  I'll try to take a look at this tomorrow.

[west]

The transition has already been happening and has caused a decline in USF/regulatory revenues.  Despite this, revenue has continued to grow and I think it will continue to do so.  The analysts following the stock have included this in there models and have 40% revenue and EBITDA growth between now and 2018.  Now this may be higher but the stock has 0% growth implied in its current price.

 

Packer

 

Packer,

 

Hopefully this isn't a dumb question, but you say "The analysts following the stock have included this in there models".  Where are you seeing these models?  I'm guessing you have access to a professional service (a Bloomberg?) that has this?

[yadayada]

I like this:

http://www.breitbart.com/Big-Government/2014/02/16/All-Alaska-Gas-Pipeline-Will-Spike-America-s-Energy-Boom

 

Did a lot of reading on the whole shale gas boom, and it looks very exciting. Alaska also seems to have large reserves compared to the rest of the US. According to the article, that pipeline will increase Alaska's GDP by 25% and wipe out unemployment. So we could see ebitda grow more then a few % a year possibly? And that probably explains the heavy investments of GNCMA. A lot of workers in Alaska, with not much to do after work. Seems like things like Internet and TV would sell really well. Especially if you basicly have close to a monopoly on both.

 

[Phaceliacapital]

http://treasureinvesting.blogspot.be/2014/07/buybacks-and-returns.html

[investor-man]

http://ir.gci.com/phoenix.zhtml?c=95412&p=irol-newsArticle&ID=1952172&highlight=

 

Denali Media Holdings Closes Purchase of Three CBS Affiliates in Southeast Alaska

ANCHORAGE, Alaska, July 28, 2014 /PRNewswire/ -- General Communication Inc. ("GCI")(NASDAQ:GNCMA) announced today the closing of the transaction between GCI's wholly-owned subsidiary, Denali Media Holdings, and Ketchikan TV, of Evergreen, Colo.

 

The transaction grants GCI ownership of three CBS broadcast stations in Southeast Alaska: KXLJ in Juneau, KTNL in Sitka and KUBD in Ketchikan.

 

The Federal Communications Commission granted authority to Denali Media Holdings in May to purchase the three CBS broadcast stations in Southeast.

 

Denali Media Holdings now owns CBS and NBC affiliates in Southeast Alaska and the CBS affiliate KTVA-TV in Anchorage.

 

GCI is the largest Alaska-based and operated integrated telecommunications provider offering voice, data and video services statewide. Learn more about GCI at www.gci.com/about.

 

SOURCE General Communication Inc. (“GCI”)

 

David Morris, GCI, (907) 265-5396, dmorris@gci.com

[gary17]

Mr. Market is excites about telecom today. I believe alsk was up 20% pre market.

 

Seems like has to do with the prospect of becoming a reit...if I heard correctly on bnn (was exercising so wasnt payn attention)

[tombgrt]

Earnings out

 

http://ir.gci.com/phoenix.zhtml?c=95412&p=irol-newsArticle&ID=1956175&highlight=

 

Looking good!

[investor-man]

Mr. Market probably won't like the lowered guidance

[racemize]

Mr. Market probably won't like the lowered guidance

 

EBITDA was at top of guidance, which seems more important anyway.  Who knows what the market will do though.

[Laxputs]

Is this right: 40mm ebitda wireless/AWN. Alaska gets 1/3 of that, so ebitda attributable to equity owners of GNCMA = 26.4mm + 44mm (wireline) = 70.4 * 4 = 282mm ebitda annualized? Do we add in the the AWN management fee too?  Anything else?

[yadayada]

yea you add in the management fee too.

[Laxputs]

"so I guess we are $258m economic EBITDA $295m - $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

 

1. I've gone over this thread a few times and I still don't get the " add the PV of 8.3mm over 4 years of debt". Would somebody explain that please?

2. Can anyone link m-capex figures from mature cellular/cable companies that shows they are X % of revenue?  210mm this year is obviously not a slow down. I've read estimations of 120mm/year and 50mm/year for GNCMA.

3. Does GNCMA have the only fibre network in the country? (Can't seem to pin that down from googling)

4. Has there been any approximations of the effect Verizon will have coming into the wireless field? Management is keeping an eye on the imminent arrival but they aren't able to say much more than that. Is it fair to think they lose 20-33% of wireless revenue with the competition from Verizon? Is there any way to approximate cable sales offsetting that? This seems integral to the value thesis, no?

 

Conference call transcript from today:

http://seekingalpha.com/article/2398565-general-communications-gncma-ceo-ronald-duncan-on-q2-2014-results-earnings-call-transcript

 

 

TIA

[nikhil25]

In U.S. Energy Boom, Alaska Is Unlikely Loser

Former Dominant Oil Player Losing Out to Places Like North Dakota

http://online.wsj.com/articles/in-u-s-energy-boom-alaska-is-unlikely-loser-1407724690

 

More people left Alaska than settled in the state between 2012 and 2013, while North Dakota added residents, according to state and federal census data.To put things into perspective, oil production in Alaska has dropped nearly 75% since its peak in the 1980s. As a result, economic activity here has slowed. Gross domestic product decreased by 2.5% in 2013, while all the other 49 states increased, according to Commerce Department data. At 6.4%, Alaska's unemployment rate in June was higher than the national average, in a trend not seen since 2008. The unemployment rate in North Dakota was 2.6%.

[Laxputs]

"so I guess we are $258m economic EBITDA $295m - $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

 

1. I've gone over this thread a few times and I still don't get the " add the PV of 8.3mm over 4 years of debt". Would somebody explain that please?

2. Can anyone link m-capex figures from mature cellular/cable companies that shows they are X % of revenue?  210mm this year is obviously not a slow down. I've read estimations of 120mm/year and 50mm/year for GNCMA.

3. Does GNCMA have the only fibre network in the country? (Can't seem to pin that down from googling)

4. Has there been any approximations of the effect Verizon will have coming into the wireless field? Management is keeping an eye on the imminent arrival but they aren't able to say much more than that. Is it fair to think they lose 20-33% of wireless revenue with the competition from Verizon? Is there any way to approximate cable sales offsetting that? This seems integral to the value thesis, no?

 

Conference call transcript from today:

http://seekingalpha.com/article/2398565-general-communications-gncma-ceo-ronald-duncan-on-q2-2014-results-earnings-call-transcript

 

 

TIA

 

bump

[Packer16]

The PV of 8.3M over 4 years is the excess amount of cash flow over the 2/3rds of AWN cash flow applicable to GNCMA.  As a part of the AWN deal, GNCMA pays ALSK a fixed payment over the first 4 years of the deal so the calculation above is an approximation of the excess amount owed to ALSK above their 1/3rd economic interest. 

 

GNCMA has one of the few FO links in Alaska but also has exclusive connections to many customers. 

 

As to maintenance cap ex you can look at mature telcos and cable cos cap-ex (FTR, WIN, CTL, CVC, SHEN, CNSL) as an initial benchmarks.

 

The impact of VZ is anybodies guess. There will be an impact whose magnitude is unknown.  They may take some share from AWN but AWN may gain some backhaul revenue as AWN has the only backhaul pipes in Alaska.  In addition for VZ, this is not that important to there overall business.  GNCMA can do little about it so they continue to focus on growth they have some influence on.  What is interesting about GNCMA is there growth over the past 10 to 15 years while others have stagnated.

 

Packer

[Laxputs]

Here's where I'm at:

 

They are trading at 6 EV/EBITDA. Comps trade around 6.7x EV/EBITDA. I believe that works out to around a 31% increase.

If comps use about 15% of revenue for m-capex, then perhaps using a more conservative 17% for a more harsh environment makes sense?

 

Revenue                      860

EBITDA (after min int)  287

Interest                      -70

M-Capex                    -146

Estimated Tax            -14

OE                              57

 

13% OE yield with growing revenue.

 

To make things simpler, let's say they are either expanding and investing for some growth, or they are maintaining their network and revenue stays constant. If they are expanding, then they don't  pay down debt or buy back stock. If they are maintaining then they are paying down debt or buying back stock. Given their margins, expanding is better for shareholders than buying back stock or paying down debt. And given their WACC vs ROC, buying back stock may be better than paying down debt. So I will do a simple run rate on a base case: Paying down debt:

 

http://postimg.org/image/flze045td/

 

Does that make sense?

 

If cable sales growth and back-hauling offset a potential Verizon presence in Wireless, then the above expectations seem reasonable.

 

[Packer16]

Given there NOLs they will not be paying taxes for awhile.

 

Packer

[Laxputs]

"As consideration for the contributed business assets and liabilities, ACS received $100.0 million in cash from GCI, a one-third ownership interest in AWN and entitlements to receive preferential cash distributions totaling $190.0 million over the first four years of AWN’s operations ("Preference Period") contingent on the future cash flows of AWN. The preferential cash distribution is cumulative and may be paid beyond the Preference Period until the entire $190.0 million is paid. ACS's preferential cash distributions are expected to be higher than that which they would receive from their one-third interest. We received a two-third ownership interest in AWN, as well as entitlements to receive all remaining cash distributions after ACS’s preferential cash distributions during the Preference Period. The distributions to each member are subject to adjustment based on the number of ACS and GCI wireless subscribers, with the aggregate adjustment capped at $21.8 million for each member over the Preference Period. Following the Preference Period, we and ACS will receive distributions proportional to our ownership interests."

 

I don't get this:

The distributions to each member are subject to adjustment based on the number of ACS and GCI wireless subscribers, with the aggregate adjustment capped at $21.8 million for each member over the Preference Period.

 

 

EBITDA last quarter from Wireless (AWN) was 40mm. 160mm EBITDA/year from wireless. But they have to pay ACS 190mm cash over 4 years? Seems like ACS will get all the cash flow from AWN for a while?

 

Do I have this wrong?