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May 08, 2006

NTL March 2006 Quarterly Earnings Preview

NTL Incorporated (NTLI) shares have held onto most of their gains following the early March closure of the company's merger with Telewest. Since that time, the company has also formally announced its merger with Virgin Mobile that is schedule to close in June.

NTLI reports tomorrow and the focus will be on cost reductions related to the Telewest merger. So far, management has provided guidance for £250 million in savings, £200 for operating expense savings and £50 million in capital spending savings, all to be fully achieved in 2008. Articles appeared in the UK press over the weekend indicating that the company may announce as many 6,000 job cuts in conjunction with its 1Q06 earnings report. In April, at the National Cable Television Association show, NTLI management hinted that cost savings could be larger and be achieved sooner than its prior guidance. On tomorrow's conference call, investors will expect confirmation, a detailed update on synergies, and full year 2006 guidance for revenues, EBITDA and key subscriber metrics.....

Investors will also be looking for an update on the Virgin Mobile merger. I doubt if management will offer much insight since this deal won’t close until June. However, details on the prospects fro rebranding the entire enterprise under the Virgin brand and the upside potential form being able to offer a wireless telephony product could be forthcoming.

Other topics of interest could be plans for the new company's substantial free cash flow and an update on private equity overtures that were apparently made at premium prices late in 2005. I've always thought that, ate the earliest, private equity would not make a move until after the Virgin and Telewest deals both closed. NTLI management has been quite confident recently and the company has a new CEO so I suspect they would resist any deal short of the upper $30 range.

As for the quarter, I can’t get a good handle on the numbers because there are very few analysts that write on NTLI (a positive attribute for longs) and the Telewest merger occurred during the first quarter. In general, I expect both NTLI and Telewest to continue on recent trends. For NTLI that means flattish growth in revenues and EBITDA with slightly positive subscriber additions. ARPU trends have been poor lately, mostly in the telephony business and recent competitor moves in broadband will make this is a key measure. For Telewest, recent trends have been stronger and I expect to see a continuation of low single digit top line and EBITDA growth with decent subscriber additions and stable ARPU.

Finally, news broke Friday that NTLI was shut out of the bidding for Premier League soccer rights. I had been hoping that NTLI would win some rights so that the company could break Sky's stranglehold on soccer-centric subscribers. The market doesn’t seem to mind NTLI's loss, probably because the pricing of the rights came in well ahead of expectations. Since I view NTLI as a free cash flow story, I'd rather forgo the rights than overpay.

Posted by Steve Birenberg at May 8, 2006 01:45 PM in NTLI