GNCMA - General Communications

[yadayada]

so they are looking at 150 million$ FCF once capital expenditures go down and AWN is added? When will they turn into a FCF machine? And how likely is a buyout within 1-2 years here by one of the big players?

 

Also you said that a 6x ebitda buyout price is likely? that is almost 1.6 bn$ . Is this company that mispriced? Allthough probably they might get squeezed a bit by Verizon entering? seems like the market is mispricing this one badly.

Still trying to get my head wrapped around this :) .

[gary17]

Don't make the and mistake I did, forgetting the debt.

 

Evj/ebitda is about 5.8 now. Ev is 1.43b and debt is about 1b.

 

So if we use 7 as the fair ratio would be about

 

7/5.8*1.43-1=725. Which is a double of current mc.

[yadayada]

ok thanks for clearing that up. So basicly there would be two catalysts? This company turning into cash machine once the LTE mostly (?) networks are rolled out and cap exp go down significantly, or being bought out by verizon or AT&T?

[gary17]

Yup pretty much.

 

I'd rather it gets into a great fcf situation personally.

 

 

 

[racemize]

Don't make the and mistake I did, forgetting the debt.

 

Evj/ebitda is about 5.8 now. Ev is 1.43b and debt is about 1b.

 

So if we use 7 as the fair ratio would be about

 

7/5.8*1.43-1=725. Which is a double of current mc.

 

Packer had a calculation of adjusted Ev/Ebitda of ~4.5x rather than your 5.8:

 

For GNCMA, you have CFO-normalized Cap Ex (15% of revs) of $65m plus 2/3rds of AWN synergies gets you $85m or a FCF multiple of 4.6x.  The normalized EBITDA multiple is 4.6x.  With GNCMA you also get growth of CFO about 27% per year over the past 5 years (or $67m).  To get this growth. GNCMA had to invest $462 m of growth cap-ex (cap-ex - maintenance cap ex) for an incremental RoI of 14.5%.  The key assumption behind both of these derivations is the loss from VZ entering the market will be offset by revenue gains in broadband sales.  Clearly, GNCMA is in a better position to do this.  So given these multiples, ALSK is cheaper but has less growth than GNCMA and at these prices I slightly favor GNCMA.

 

 

[racemize]

ok thanks for clearing that up. So basicly there would be two catalysts? This company turning into cash machine once the LTE mostly (?) networks are rolled out and cap exp go down significantly, or being bought out by verizon or AT&T?

 

Given that Verizon has already chosen to start roll-out, it seems like they wouldn't do a buy out (or that would seem odd to me).  Perhaps one of the other players (sprint) could consider it.

[Packer16]

I get closer to $100 m in free cash flow, which is a FCF yield of 26% at current prices.  Coinicidentally, there is a $100 m share buyback authorization for GNCMA.  There are only 3 analysts following GNCMA and none of them are the larger firms. 

 

I get EBITDA closer to $296 = $62.1*4 (total 2Q EBITDA) - $13.4*4 (2Q wireless EBITDA) + $150m*2/3 (AWN EBITDA (incl synergies of $30m); Note: 2 mo annualized EBITDA from ALSK disclosure closer to $200m) + $5m (AWN mgmt fee).  I have net debt of $958m so EV of $1.343.  Resulting in an EV/EBITDA of 4.5x.

 

Packer

[yadayada]

Yup pretty much.

 

I'd rather it gets into a great fcf situation personally.

any clues on when cap exp goes down to 100m$ FCF levels (or close)? From their latest Q call, management didnt want to give guidance on that. Probably looking at like 2-3 years?

[racemize]

Yup pretty much.

 

I'd rather it gets into a great fcf situation personally.

any clues on when cap exp goes down to 100m$ FCF levels (or close)? From their latest Q call, management didnt want to give guidance on that. Probably looking at like 2-3 years?

 

From my reading, they seemed to indicate that there weren't a lot of big projects for cap-ex, but also said every time they thought that, something else came up.  so.... I guess take your pick on what will happen.

[Packer16]

At $150 m EBITDA the FCF from AWN plus the $5m mgmt fee is $150m EBITDA less $40m cap-ex = $110m *2/3 = $73m plus $5m mgmt fee is equal to $78m from AWN alone.  The additional $23m is from GNCMA's other assets about a 12% conversion rate from non-AWN EBITDA of $190m.  ALSK's estimated conversion rate is close to 17% ($15m/$90m).

 

Another point is AWN is unlevered so in theory additional CF could be extracted from AWN by issuing debt.

 

Packer

[HJ]

I'm no expert in this, but in looking up information on potential competitors in this space, I noticed this "Arctic Fiber" project.  (www.arcticfiber.com).  In the spirit of "buy and hold forever", what do you guys think is the likelihood of this project ever getting funded, or a "target time line" this project could be on?

[no_thanks]

So does anyone have an opinion on the three CBS affiliates they just bought?  Seems like people like the deal, but I haven't seen any numbers on it yet.

[OracleofCarolina]

http://finance.yahoo.com/news/gigabit-broadband-coming-alaska-203000610.html

 

Making moves

 

http://finance.yahoo.com/news/gci-announces-planned-leap-internet-003344374.html

 

They project a cost of $100 million to roll out by 2015

[yadayada]

what does this mean for the near term FCF?

 

Is there any way to gauge what Cap exp will be in teh future. with ebitda of about 290, interest is 60, so that is 230. So let lets say well over 200 million $ (probably some taxes from AWN?, or are those assets still depreciated?) Looking at history cap exp always seems to hover between 100 and 200 million$. So I supose a bargain then. But lets say the price goes up like 70% next year, how do I know when to sell this one? What would cap exp look like in 2-3 years? They dont really seem to disclose maintenance cap exp :/ . Since 5g seems unlikely anywhere in the near future, there could prbably be some upside from 100 m$ FCF and upwards?

 

Typical first world problem tho.

[plato1976]

Copied from another thread :

 

This does concern me a little bit. Bare min, if GNCMA continues to spend these kind of money, should we include them in normalized capex ? Probably we should set a lower target price

 

"

We should probably move these discussions to the General Cable board.  But (1) the aforementioned capex is not for wireless, but cable speed.  In other markets, whether it's ATT U-verse or Verizon Fios, or Google Fiber, there is competitive pressure to upgrade the infrastructure to a higher speed.  But in Alaska, that pressure doesn't seem to be there.  The only other company, ALSK, doesn't seem to have the appetite or capitalization to do this, which is what makes GNCMA attractive in the first place.  However, they are behaving no differently from other cable operators, or in some ways even more axed to do Capex, which sort of negates a somewhat better competitive position than most other telecoms. 

 

From shareholders' perspective, taking a 10+ year view, the stock was 7.5-8 in the late 90's.  15-20 years later, you are up 30%, with no dividend, in a less competitive market than those operated by, say, a Comcast. 

 

Now the stock does trade at a discount to other cable systems, which all kind of suffer from the same issues, which you can argue makes it relatively cheap.  If we were at some sort of Capex inflection point, where we are finally beginning to reap some of the benefits of their prior $2 billion infrastructure spend, it may well be very cheap fundamentally.  But I'm less willing to make that judgement when I just read that they are about to spend another $100MM in the next 2 years, in addition to whatever capex plan they already have committed to, on an infrastructure that is not under any meaningful competitive pressure, when their own market cap is only $400MM.  Just seem to me the least they can do is to space this thing out over a longer time frame.  Verizon put a temporary stop to their FIOs build out plan a couple of years ago, to at least get some cash flow in the door on previously sunk capital.  And with these guys, it just never seem to be a good time to harvest, and always a good time to build.

 

All this though, is from someone who doesn't really know enough of telecom, the competitive / technological dynamics, and trying to understand the industry better.  All this capex may indeed be very well justified.  I just don't know how to reach that conclusion.

"

 

what does this mean for the near term FCF?

 

Is there any way to gauge what Cap exp will be in teh future. with ebitda of about 290, interest is 60, so that is 230. So let lets say well over 200 million $ (probably some taxes from AWN?, or are those assets still depreciated?) Looking at history cap exp always seems to hover between 100 and 200 million$. So I supose a bargain then. But lets say the price goes up like 70% next year, how do I know when to sell this one? What would cap exp look like in 2-3 years? They dont really seem to disclose maintenance cap exp :/ . Since 5g seems unlikely anywhere in the near future, there could prbably be some upside from 100 m$ FCF and upwards?

 

Typical first world problem tho.

[sethatk]

Anyone know why we are off to the races this morning?

[tombgrt]

Anyone know why we are off to the races this morning?

 

Packer has established his full position.

[zippy1]

Anyone know why we are off to the races this morning?

 

Packer has established his full position.

 

thumb up!

 

[tombgrt]

But seriously. I had a very big position in GNCMA at $9.50. With some stocks going lower these last few weeks I decided to sell out of 1/3th and buy those instead because "GNCMA has been trading in this channel between $9-10 forever". Now I have to do with just a big position (still 35%+ of portfolio but still!).

 

I wonder whether the catalyst simply is the announced investment followed by some momentum guys seeing it break through $10 (yesterday).

[sethatk]

This stock just clicks for me and I feel very comfortable with management and their performance.

[fenris]

Anyone know why we are off to the races this morning?

My interpretation would be:

Seller(s) at $10 were cleaned up as of Friday (on high volume, especially into the close) and the set-up attracted traders hoping for a quick buck on the break out.

[plato1976]

Anyway, the market is quite bullish on this gigabit capex spending...

 

Copied from another thread :

 

This does concern me a little bit. Bare min, if GNCMA continues to spend these kind of money, should we include them in normalized capex ? Probably we should set a lower target price

 

"

We should probably move these discussions to the General Cable board.  But (1) the aforementioned capex is not for wireless, but cable speed.  In other markets, whether it's ATT U-verse or Verizon Fios, or Google Fiber, there is competitive pressure to upgrade the infrastructure to a higher speed.  But in Alaska, that pressure doesn't seem to be there.  The only other company, ALSK, doesn't seem to have the appetite or capitalization to do this, which is what makes GNCMA attractive in the first place.  However, they are behaving no differently from other cable operators, or in some ways even more axed to do Capex, which sort of negates a somewhat better competitive position than most other telecoms. 

 

From shareholders' perspective, taking a 10+ year view, the stock was 7.5-8 in the late 90's.  15-20 years later, you are up 30%, with no dividend, in a less competitive market than those operated by, say, a Comcast. 

 

Now the stock does trade at a discount to other cable systems, which all kind of suffer from the same issues, which you can argue makes it relatively cheap.  If we were at some sort of Capex inflection point, where we are finally beginning to reap some of the benefits of their prior $2 billion infrastructure spend, it may well be very cheap fundamentally.  But I'm less willing to make that judgement when I just read that they are about to spend another $100MM in the next 2 years, in addition to whatever capex plan they already have committed to, on an infrastructure that is not under any meaningful competitive pressure, when their own market cap is only $400MM.  Just seem to me the least they can do is to space this thing out over a longer time frame.  Verizon put a temporary stop to their FIOs build out plan a couple of years ago, to at least get some cash flow in the door on previously sunk capital.  And with these guys, it just never seem to be a good time to harvest, and always a good time to build.

 

All this though, is from someone who doesn't really know enough of telecom, the competitive / technological dynamics, and trying to understand the industry better.  All this capex may indeed be very well justified.  I just don't know how to reach that conclusion.

"

 

what does this mean for the near term FCF?

 

Is there any way to gauge what Cap exp will be in teh future. with ebitda of about 290, interest is 60, so that is 230. So let lets say well over 200 million $ (probably some taxes from AWN?, or are those assets still depreciated?) Looking at history cap exp always seems to hover between 100 and 200 million$. So I supose a bargain then. But lets say the price goes up like 70% next year, how do I know when to sell this one? What would cap exp look like in 2-3 years? They dont really seem to disclose maintenance cap exp :/ . Since 5g seems unlikely anywhere in the near future, there could prbably be some upside from 100 m$ FCF and upwards?

 

Typical first world problem tho.

[jwfm1985]

Anyone know what's been driving the recent run-up other than reaction to the announcement on the future investment...? Thanks for the recommendation Packer - I got very lucky on the timing!

[jm25]

Stock is off 9%-10% since Jan 9.

[jwfm1985]

Bought a bit more this afternoon