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Media Talk

Growth Liftoff Coming at Liberty Global

Liberty Global (LBTYK) reported results right in line with Wall Street estimates for its 2Q15.  Adjusted growth in revenues and operating cash flow were both up about 3%.  We expect that 2Q15marked the last quarter where LBTYK reports slower growth.  Management agrees and reiterated its guidance for a pickup to mid-single digit growth or higher in the second high and over the next few years.  The acceleration in growth should allow LBTYK shares to fulfill our long standing target of reaching the mid-$60s.

LBTYK has repositioned itself over the past several years by completing major acquisitions in Germany, the United Kingdom, and the Netherlands.  These deals came at a time of rising competition and weak economic growth in Europe.  The company is now poised to reap the benefits of the acquisitions as merger cost saving synergies kick in and stronger brands and products are services are marketed to customers.  LBTYK is also positioning itself to build a bigger mobile business by offering wireless services in many countries where it operates.  The quad play bundle of TV, internet, wireline phone, and wireless phone is much more popular in Europe than the United States.

Management is buying back a ton of stock and could even raise the buyback in 2016.  The company is also initiating a new program dubbed Liberty 3.0 to drive growth to the mid to high single digits.  The balance sheet is being constantly refinanced to both push out maturities (none prior to 2020) and lower interest expense (a benefit from European issues as the ECB keeps rates extraordinary low).

LBTYK shares have been good not great performers over the past 18 months.  Northlake believes that the story is coming together fully in the second half of 2015 and 2016.  A pickup in growth rates should allow investors to more beyond the weak euro, continuing worries about European economic growth, and periodic competitive battles in individual countries.

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.  Northlake’s regulatory filings can be found at www.sec.gov.  LBTYK is a net long position in the Entermedia Funds.  Steve is portfolio manager and managing partner of Entermedia, long/short equity hedge funds focused on media, entertainment, leisure, communications, and related technologies.

 

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