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May 14, 2012
Liberty Global: Sunshine in Stormy Weather
Liberty Global (LBYTK) reported another solid quarter despite having virtually all of its cable operations in Europe. The company operates primarily in the stronger Northern European countries of Germany, Netherlands, Belgium, and Switzerland. However, the real secret to another quarter of solid growth is the well-timed acquisition in German over the past few years. For many years, German household adoption of digital cable TV and high speed internet severely lagged other European countries and other wealthy industrialized countries. Liberty saw the shift toward more rapid adoption by Germans coming and astutely shifted its asset based toward German with the acquisitions of Unity Media and KBW. Liberty also sold its Japanese and Australian businesses.
The shift is working. In the latest quarter, Liberty had rebased revenue growth of 6% and rebased EBITDA growth of 3.5%. For the second consecutive quarter, new customer additions soared past estimates. Liberty has added about 900,000 new revenue generating units ( a subscription to cable TV, high speed internet, or telephony). This is about double the pace Wall Street expected and quite remarkable considering the economic situation in Europe.
The new subscribers come at a cost which explains the slower EBITDA growth relative to revenue gains. Marketing and customer premised equipment and setup pressures margins. However, in subsequent quarters as subscribers additions moderate, Liberty has locked in future growth in revenue, operating, and free cash flow.
With the free cash flow, Liberty will continue to aggressively buyback its shares and keep the balance sheet in shape should another acquisition opportunity arise. Recent business trends, top notch operating management, and a shareholder friendly management team and Board of Directors should let Liberty shareholders see 20-25% upside in the next six to twelve months.
Disclosure: LBTYK is widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg's personal accounts. Steve is sole proprietor of Northlake, a registered investment advisor. LBTYK is a new long position in the Entermedia Funds. Entermedia are long/short equity hedge funds focused on media, entertainment, communications, and related technologies. Steve is co-portfolio manager of Entermedia, owns a stake in Entermedia's investment management company, and has personal monies invested in the Funds.
Posted by Steve Birenberg at May 14, 2012 01:55 PM in LBTYK
STOCKS IN MINDLESS FREE FALL AGAIN.
BACK TO THE FUTURE/2008 DEJA VU AGAIN.
IS THERE ANY SIGN THAT THIS DROP IN THE MARKET WILL STABILIZE
ANYTIME SOON? OR SHOULD WE CONTINUE TO SELL AND HOLD LARGE CASH POSITIONS?
I think we are getting to levels where a tradeable bounce can be made from the long side. It is only a 2008 scenario if Greece or Europe triggers a Lehman event that causes a severe recession. I don't see that happening as the world is more prepared with banks and corporations and individuals having better balance sheets and therefore an ability to weather the storm. But trading is going to be tricky and event risk to the downside is high. I have committed a little cash to my hedge fund where I market time but every thing is a trade with a stop loss.
Posted by: Steve at May 18, 2012 09:02 AMWHAT IS GOING ON WITH CETV'S TENDER OFFER CHANGES?
CAN THE STOCK BOUNCE FROM HERE OR IS IT JUST ALOST CAUSE?
I don't think CETV is a lost cause. A double digit stock price is doable if Europe settles down. I think the recent weakness has three causes: (1) the weak Euro and pessimism on Europe, (2) the S&P downgrade of the debt rating last Friday, and (3) lack of traction on the bond tenders as evidenced by the need to raise the price paid and extend the time of the offer to June. Unless TWX walks away from the transaction just announced (not gonna happen), the stock will stabilize and rise as Europe does the same. Until then there is little hope for a big rebound and it could go lower.