Following a rough stretch that management described as a perfect storm, Liberty Global (LBTYK) had some good news today.  First, 4Q15 earnings met expectations with 4% adjusted revenue growth and 6% adjusted operating cash flow growth.  This marked the second consecutive quarter of accelerating growth after a below par 1H15, exactly as management had promised.  Executing on promises should help damaged management credibility and increase confidence in the second piece of good news.  For 2016, management issued guidance for 5% and 7% adjusted revenue and operating cash flow growth, respectively.  Both figures were in line with current Wall Street analyst estimates and likely a bit ahead of investor fears following the slow first half of 2015 and 25% drop in the stock price in the past few months.  Long-term guidance for even faster growth, 7-9% EBITDA growth was also issued.  Finally, LBTYK announced it had entered into a joint venture with Vodafone in the Netherlands whereby the companies would combine Liberty’s cable network business with Vodafone’s industry leading mobile network business.  Vodafone had announced a few weeks ago that discussions were underway.  Projected synergies in the deal were ahead of expectations and the terms of the deal seem highly favorable to LBTYK.  LBTYK’s Ziggo business in the Netherland sis being valued at 11X EBITDA, a large premium to the current valuation for the whole company near 8X.  Additionally, LBTYK will get a $1.1 billion cash payment from Vodafone to equalize value contributed to the JV.

Investors are cheering today’s news with LBTYK shares rising over 5% initially.  The perfect storm management alluded to includes currency weakness, rising competition, a poorly received acquisition in Latin America, a misstep in Germany in early 2015 with price increases, and being a highly leveraged company in a market suddenly fearful of debt.  We believe that today’s news on earnings and Netherlands has reset expectations and cleared the air.  Merely executing on 2016 guidance should be enough to move the shares back to $40, up 20%.  Any easing in the macro environment or improvement in credit markets provides additional upside.  Further accretive M&A is likely given the outsized synergies in the new joint venture.  Finally, should the new build activity in the United Kingdom, Germany and elsewhere meet expectations, long-term growth in revenue, operating cash flow, and free cash flow will accelerate.  LBTYK shares lost their way over the past few months but the long-term record of the management team and stock price is secure.  Northlake thinks the bottom is in with plenty of near-term and long-term upside ahead.

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.