GNCMA - General Communications

[sethatk]

SA article

http://seekingalpha.com/article/2020121-general-communication-value-hides-in-alaska

[Palantir]

Just to clarify, the GNCMA EBITDA is fully consolidated, not just reflecting 2/3 of AWN?

 

SAY WAH? No, I think we're both confused here. What I'm saying is this: Compute EBITDA for GNCMA's non-wireless segments. Add to this 2/3rds of AWN's EBITDA (Packer did this, I quoted it on the prior page). Add to GNCMA's debt the present value of the portion of the minimum payment that is greater than 1/3rd of AWN's income.

 

So, in the end you have just the EBITDA that belongs to GNCMA and you have added to debt the money that GNCMA will owe ALSK in the next four years.

 

Agreed-we are saying the same thing. I'm pretty sure that the AWN contribution is baked in to the GNCMA's numbers for 3rd quarter--in the conf. call they suggested that $265M was the actual 2013 guidance, and that included contributions from the transaction, but did not represent pro-forma impacts for periods before close. So as the AWN contribution rolls, the only adjustment (to EBITDA) should reflect any synergies that have not yet benefited cash flow.

 

I agree that to find the consolidated EBITDA, you need to isolate the wireline, and add 2/3's the EBITDA for AWN, but does the wireless section include the minority interest? I'm going to assume it does, in which case we need to add the capitalized non-controlling interest on the B/S to the EV to get about 1.725B.

 

So a 300M expected EBITDA, gives us a ratio of 5.75, which is not as egregious as before I guess, but still fairly cheap.

[yadayada]

Oh so 2/3 of ebitda needs to be given back to ALSK? That would still make this 275 million in ebitda. Allthough the number is fixed right? So if they increase ebitda that comes out of AWN they catch all the upside right? Or is that onlyt he first 4 years.

[Palantir]

GC gets 2/3, ALSK gets the rest.

[Packer16]

The minority interest is the 33% ALSK interest in AWN.  So if you add 2/3rd of the AWN EBITDA to the non-wireless EBITDA of GNCMA you need to only capitalize the difference between the distribution to ALSK and 1/3rd of the AWN EBITDA (the excess distribution paid to ALSK) which on average will be $17.5 million over 4 years.  With that adjustment you are at an EBITDA level of $296 (assuming $150 m EBITDA for AWN (2 months annualized EBITDA reported by ALSK for AWN was closer to $200m) and $5m management fee paid to GNCMA from AWN).  The EV is close to $1.4 billion or an EV/EBITDA of 4.7x.

 

Packer

[APG12]

I agree that to find the consolidated EBITDA, you need to isolate the wireline, and add 2/3's the EBITDA for AWN, but does the wireless section include the minority interest? I'm going to assume it does, in which case we need to add the capitalized non-controlling interest on the B/S to the EV to get about 1.725B.

 

So a 300M expected EBITDA, gives us a ratio of 5.75, which is not as egregious as before I guess, but still fairly cheap.

 

Why are you isolating the EBITDA that just belongs to GNCMA and then adding the minority interest to EV for your EV/EBITDA multiple?

[tombgrt]

Packer, you have a lot of patience. Plenty of posts in both the gncma and alsk topic yet people keep asking the same questions. Can you all just read the topic? Hell IR from both companies have made really clear presentations om the awn subject as well.. Don't make this a second shld topic. :D Tia! ;)

[racemize]

Packer, you have a lot of patience. Plenty of posts in both the gncma and alsk topic yet people keep asking the same questions. Can you all just read the topic? Hell IR from both companies have made really clear presentations om the awn subject as well.. Don't make this a second shld topic. :D Tia! ;)

 

it really only takes about 30 minutes to make it through this thread too.

[Palantir]

I agree that to find the consolidated EBITDA, you need to isolate the wireline, and add 2/3's the EBITDA for AWN, but does the wireless section include the minority interest? I'm going to assume it does, in which case we need to add the capitalized non-controlling interest on the B/S to the EV to get about 1.725B.

 

So a 300M expected EBITDA, gives us a ratio of 5.75, which is not as egregious as before I guess, but still fairly cheap.

 

Why are you isolating the EBITDA that just belongs to GNCMA and then adding the minority interest to EV for your EV/EBITDA multiple?

 

You are correct, I meant to add the entire AWN EBITDA to GCI....

[APG12]

Packer, you have a lot of patience. Plenty of posts in both the gncma and alsk topic yet people keep asking the same questions. Can you all just read the topic? Hell IR from both companies have made really clear presentations om the awn subject as well.. Don't make this a second shld topic. :D Tia! ;)

 

it really only takes about 30 minutes to make it through this thread too.

 

+1. The calculations are only two pages prior too.

[Guest valueInv]

What do you guys think is the reason for GNCMA's undervaluation ?

[gary17]

the lack of dividend - that's why people buy telcos

[racemize]

I think it is the lack of understanding of the EV/EBITDA ratio for 2014, which has been demonstrated in this thread and the seeking alpha write-up.  Perhaps it won't show up as we think though, or the Verizon impact will be bigger than expected.

[plato1976]

 

Agree,

and I am constantly thinking when they will have a dividend

 

 

the lack of dividend - that's why people buy telcos

[Palantir]

Are the 30M in synergies for GCI? All they say is, "Synergies from the transaction are expected to total $30 million a year". If I am not mistaken, keeping in mind that this is a joint news release, it seems based on the wording that the 30M is for both ACS and GCI in total.

[constructive]

 

Agree,

and I am constantly thinking when they will have a dividend

 

 

the lack of dividend - that's why people buy telcos

 

But Duncan is a Malone protege. Has Malone ever used dividends? I don't think so.

[investor-man]

 

Agree,

and I am constantly thinking when they will have a dividend

 

 

the lack of dividend - that's why people buy telcos

 

But Duncan is a Malone protege. Has Malone ever used dividends? I don't think so.

 

+1

[gary17]

If gncma becomes 30 then he'll be a portage. As far as I know he was just a student when Malone was teaching.

 

[tombgrt]

If gncma becomes 30 then he'll be a portage. As far as I know he was just a student when Malone was teaching.

 

 

What does the share price have to do with his status?  Or do i misunderstand what you are saying?

 

In any case, dividends or not shouldn't matter given the capital allocation track record of the management team. I'd say buy backs and good reivestment options are far more important.

 

I also found the SA article rather weak. For example, he's more than likely underestimating the ebitda coming from AWN. If it comes close to $ 200M that would also have a decent added impact because of the management fee.

 

At 300M+ and only a 7 times multiple you would still have a double even if you calculated an EV of $1.7b. At that price you could easily agrue that it is still cheap considering the growth and media moat they are starting to build out.

 

[gary17]

All I'm saying is I'd look at the numbers more than placing too much of a weight on how he is related to Malone. He's a different guy just like no two value investors execute the same.

 

As long as the plans work out then he'll deserve all the credits. But I'm not investing in this because he is malone's student. I like the price which translates to low risk.

 

Gary

[HJ]

In any case, dividends or not shouldn't matter given the capital allocation track record of the management team. I'd say buy backs and good reivestment options are far more important.

 

OK, how about this, just pulling numbers from 10-K,

 

2012 operating earning is 88.98MM, less 67.75MM interest, 12.09MM taxes, they earned 9.162MM on 38.357MM basic shares outstanding. 

1996 operating earning is 16.4MM, less 3.7MM interest, 5.23MM taxes, they earned 7.462MM on 36.59MM basic shares outstanding.

 

There has been no dividend during this past 16 years.  If share buy backs and capital allocation track record has been that great over this period of time, it's certainly difficult for me to tell looking at these numbers.

[gary17]

In any case, dividends or not shouldn't matter given the capital allocation track record of the management team. I'd say buy backs and good reivestment options are far more important.

 

OK, how about this, just pulling numbers from 10-K,

 

2012 operating earning is 88.98MM, less 67.75MM interest, 12.09MM taxes, they earned 9.162MM on 38.357MM basic shares outstanding. 

1996 operating earning is 16.4MM, less 3.7MM interest, 5.23MM taxes, they earned 7.462MM on 36.59MM basic shares outstanding.

 

There has been no dividend during this past 16 years.  If share buy backs and capital allocation track record has been that great over this period of time, it's certainly difficult for me to tell looking at these numbers.

 

i think it's just been tough to do well in alaska --  on the other hand i took a position because it's now cheap enough after the awn transaction i think there's a chance it could be better valued.  we will see. 

[Packer16]

In 2007 they had 52.7 m shares outstanding and only 40.5 m today while increasing EBITDA from $148.8m to $219.5m in 2012 and jumping to almost $270m today (pro-forma w no AWN synergies).

 

Packer

[HJ]

Per 10K:

"On October 21, 2010, we entered into a stock purchase agreement with Arctic Slope Regional Corporation (“ASRC”), pursuant to which GCI repurchased 7,486,240 shares of GCI’s Class A common stock for $10.16 per share, representing a total purchase price of $76.0 million.  Prior to the repurchase ASRC was a related party.

 

During the year ended December 31, 2011, we repurchased a total of 5.2 million shares of our Class A common stock under the stock buyback program at a cost of $52.6 million.  The repurchase reduced the amount available under the stock buyback program to $92.9 million.  During the year ended December 31, 2010, we repurchased a total of 8.0 million shares of our Class A common stock under the stock buyback program, at a cost of $80.8 million.  There were no repurchases during the year ended December 31, 2009.  The repurchased stock was constructively retired as of December 31, 2011."

 

I haven't read into Arctic Slope Regional Corporation fully as to what the arrangement is between them and GCI to fully understand the circumstance that resulted in that particular repurchase, which accounted for 95% of the 2010 reduction in shares.  As far as I can tell, other than 2010, 2011 is the only year that they did any meaningful repurchase, at an average price of slightly above $10, which has slowed down to $10MM run rate by now, presumably because of the AWN deal.  In spending a little time reading the conference transcript from '08 - '09, during which the management was prodded to buy back some stock at prices significantly below $10, to which the response was always "we have to be flexible, and balance capex vs. buy back", and none was bought.  Now all of this may just simply reflect the capital intensity of this business, and I maybe willing to reach a conclusion that maybe we are in a period of reduced capital intensity after AWN, until I read about this $100MM capex:  http://www.newsminer.com/business/gci-announces-planned-leap-in-internet-speed/article_a4ccc4a4-6922-11e3-9055-0019bb30f31a.html .  $100MM cap ex, $10MM buy back.  How balanced is that?

 

I'm no cable / telecom expert.  All of this may simply be what needs to be done here to retain revenue and preempt competition.  I keep on wondering what we are looking at here is not railroads in the 60's and 70's, rather than that of the 90's and 00's.

 

 

 

 

 

[Packer16]

They have bought back about 7% in 2012 from FD shares of 42 to 39.  In addition compared to other telecos there TTM EBITDA are significantly up.  If you were paying for this in the price I would not be too excited but here you have a company the walks and quacks like a cable co and is priced as a declining Teleco.

 

Packer