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September 12, 2006
Thoughts on NTL Management Presentation
NTL Incorporated (NTLI) CEO Stephen Burch made a presentation at Jefferies 4th Annual Communications Conference. The company made no comments and took no questions related to the status of negotiations with private equity firms over the possible takeover of NTLI. Based on press reports there is clearly something going on related to private equity. Whether a deal emerges is anyone’s guess but tope tier private equity firms are putting a lot of effort into structuring a deal which would seem t to place great pressure on the Board to provide something for shareholders if no deal is struck.
The presentation focused on business fundamentals including progress on merger synergies, improvements in NTL customer service, and rebranding to Virgin. Management comments on all fronts were constructive. One key
takeaway is that the new senior management team comes across as confident and competent. Sadly, that is an improvement over the prior regime.....
On synergies, Burch repeated the £250 million target by year end 2007 comprised of £200 million in operating expense savings and £50 million in capital spending savings. O numerous occasions regarding several different aspects of synergies Burch said the plan was ahead of schedule. Free cash flow at the current run rate is over £200 million so the magnitude of synergies are enormous. No wonder private equity is interested.
On customer service, Burch showed stats indicating an improvement for NTL and said that the original goal of matching merger partner Telewest by year end would be met in October. He admitted that improved perception by consumers and media will lag the improvement. He also reminded investors that customer service improvement have an economic benefit by reducing churn and upselling additional products.
On Virgin, Burch was very enthusiastic about the rebranding which will occur in 1Q07. He stated several times that all aspects of the rebranding strategy are set to roll out but that it would be delayed until early 2007. The combination of Virgin’s stellar brand reputation in the UK and NTL’s very poor reputation create substantial upside for NTL but not without risk.
Overall, I concur with Burch’s statements that while competition is tougher than ever in the UK TV, telephony, and broadband markets, NTL is a stronger company than it has ever been. Producing top line revenue growth, increasing ARPU, and hitting margin targets are no sure thing but the stock is cheap indicating that expectations are low.
With no private equity deal and no sweetener from the Board, the shares have 10-20% downside. A sweetener without a deal ought to keep the stock close to current levels, limiting downside to 0-10%. A private equity deal ought to be at $32 or better, providing 18% upside or more. I think odds strongly favor a deal or no deal with a sweetener so I am sticking to my long position in NTLI.
Posted by Steve Birenberg at September 12, 2006 01:20 PM in NTLI
DAVID FABER ON SQUAWK BOX ON CABLE ANNOUNCED THAT THE NTLI DEAL IS DEAD AND THAT THERE ARE NO ONGOING DISCUSSION BETWEEN INVOLVED PARTIES.WHAT DID YOU HEAR IN THIS REGARD? IF THIS IS TRUE, DOES NTLI BECOME A"SELL"?
Posted by: MP at September 15, 2006 08:24 AMI saw the report. WHo knos if Faber has good sources or not. Maybe private equity leaked this news to put pressure on NTL management which continues to hold out for too high a price. If there is no deal, I'd say that in the short-term it is a sell. But eventually the pressure onmanagement willbe too great and a deal willbe struck. I am looking to sell some stock today if the initial hit is not too large. Remember it is up from $20.
I have absolutley ZERO info on this situation beyond what you have.
Posted by: Steve at September 15, 2006 08:28 AMMike, I ended up selling NTLI at $26.34. Just ont he chance it would open better than expected I decided to offer it and surprisingly it got taken at that level. I would definetely consider buying it back and I could easily regret this sale as I do think the Faber story is suspicious but after all the stock hasmoved from $20 to $26 since the earnings report.
Posted by: Steve at September 15, 2006 08:43 AMANY NEWS ON CETV AND/OR NTLI .I LISTENED TO A PART OF THE CETV CONFERENCE ON WEBSITE,BUT HEARD ONLY GENERIC INFORMATION. DID CETV EVENTUALLY INCREASE ITS YEARLY GUIDANCE? ALSO,WHAT IS GOING ON WITH NTLI'S ACQUISITION POSSIBILITIES?
Posted by: MP at September 21, 2006 01:30 PMI jus t returned home from the CETV meeting in NY. The company slightly raised guidance by boosting EBITDA is the Czech Republic by $5 million. THis was offset by $1 million of losses in Croatia and $4 million of losses on a new netwrok in Ukraine. Overall, though I would call a boost in guidance as those other losses mean little and Czech is crucial.
I think the meeting went very well - big crowd, good news, clearly articulated. I am more confdent than ever in CETV. I think with a decent market the stock can double int he next 2 to 3 years.
Nothing new on NTLI. At the GOldman conference, Mooney said they are open to deals and that there are financial and strategic buyers. However, he thinks the stock should be trading at $30 now and wants a premium to that in a deal. On that basis, I don;t think there is a deal. However, he indicated that 3Q results will be good. My question s whether his definition of good will satisfy investors. I sold at $26.34 and feel good about that decision. I thinko oddsof a deal have gone down but beleive with decent results the stock will hold at $23-24.
Posted by: steve at September 22, 2006 01:47 PM