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August 07, 2006

NTL 2Q06 Earnings Preview

NTL Incorporated (NTLI) reports tomorrow morning. This stock has been my personal Waterloo but I think that investors are overly pessimistic especially in light of the significant free cash flow the company can generate in a no growth environment. The bar is set quite low for the quarter given the lousy action in the stock and all the competitive announcements coming out of the UK. An in line report should be enough to pop the stock but NTL has missed on more than one occasion in the past couple of years.

Analysts are looking for revenues of just over £890 with EBITA between £285 and £305. NTLI is adopting the customer acquisition strategy of its more successful merger partner, Telewest. This mean the emphasis is on growing revenue generating units per customers as opposed to growing customers.. Consequently, the key customer metrics to watch is RGU adds. Analysts are looking for 150,000 with total customer adds of around 5,000. NTLI is still tightening its credit standards which could have a negative effect on customer adds. The other important metric is average revenue per user. The UK might be the most competitive telecom market in the world with numerous offers of “free” broadband within larger bundles. Investors are very concerned that NTLI will lose customers and see significant pricing erosion. Management has been publicly confident that its bundling strategy and focus on customer retention will allow ARPU to remain stable or even rise slightly. For 2Q06, analysts are looking for a slight uptick in ARPU to £41.80....

Other important measures to watch are subscriber additions for video, digital video, broadband, and telephony. Analysts estimates call for 5,000, 50,000, 150,000, and 5,000, respectively. The broadband number will be most closely watched given the multiple “free” broadband offers that apparently attracted customers during 2Q. Management has stated that these offers do not effectively target NTLI’s customers.

Finally, I hope that management will formally increase its synergy targets in terms of magnitude and timing. This would be a nice boost for investor confidence in free cash flow generating capabilities.

I am a nervous long ahead of the quarter.

Posted by Steve Birenberg at August 7, 2006 01:04 PM in NTLI