Great article! Agree on ATUS being highly attractive. On Charter, the FCF conversion is actually a bit better, given that there was no adjustment for “growth” capex (therefore more attractive). For Altice you can also make the adjustment, and the FCF multiple is more around 7x
ATUS leverage is north of 5.5x - much higher than all peers. I would think that along with the Draghi discount is mostly the reason for the valuation discrepancy. Would think a mix of debt paydown and equity buybacks would be the right path. Ideally getting that leverage to <5x would probably help the multiple.
Are you underweighting the threat from Starlink? I am an ATUS customer who would love not to be an ATUS customer, and I suspect many other people are in the same boat (aircraft carrier?)
Starlink has oligopoly busting potential, and it seems like a lot of the models would go out of the window in that case
Thank you for the comprehensive write-up. I don't follow the math here why you double the multiple -- are you back solving for the implied EV/EBITDA of 11x (given EBITDA-Capex and EV/ EBITDA-Capex --> EV)?
"I get that number by looking at after-capex cash flow: WOW’s EBITDA margins are ~39%, and their capex intensity is ~20%. So you can basically double WOW’s multiple to get their after tax cash flow multiple (i.e. 11x EBITDA equals ~22x (EBITDA - capex) multiple)."
This stock has been an absolute bust since this recommendation - vs. the broader market as well as peers. Think the debt load has a lot to do with it..
"Shareholder protection in the U.S. is much better than Europe; if Drahi tried to take ATUS private, it would put Altice in play and open them up to a competing bid from a strategic."
How so? If he tried to take it private, the Board would have to set up an independent committee, sure.
But given that Draghi has control, how could a competing bid work?
I'm not at all an expert in this matter (shareholder protection / bids), so I'm seeking enlightenment.
Great write up, I’m a big fan of cable / fiber companies rn given the disconnect between public vs private valuations. Have you looked in to Frontier Communications? They recently emerged from bankruptcy and seem like an interesting deep value play.
Thank you for the interesting write up. What do you think about Cogeco? It's trading at a lower EV/EBITDA ratio as well, especially considering the holding setup $CCA.TO / $CGO.TO.
I loosely follow it. It's cheap, but management isn't as committed to shareholder value, and the canadian assets deserve a lower multiple than us asses.
Thank you for the reply. You are probably right about management/owner family. Why do you think the CA assets deserve a lower multiple? EBITDA margins around 48% (higher in mature CA markets) look quite good and about half the revenue is US based. Although capex/rev at 20% could be improved.
I’ve been looking at Cogeco inc and comm for sometimes and especially inc has consistent and predictable fcf and rather cheap/attractive p/fcf. I would like to think the family actually cares about shareholder value as they are major shareholders, own like 60% and were approached by Rogers and Altice for their shares amd Cogeco assets. They also predicted 2-5 consistent revenue growth with costs decreasing. We can easily take a peek at their assets and a little read would show that they are prized jewels desired by big dogs and have a much higher value than the mkt cap altogether hence a rather easy choice especially when the price keeps tumbling offering better m.o.s. Lemme know how you feel…
Great article! Agree on ATUS being highly attractive. On Charter, the FCF conversion is actually a bit better, given that there was no adjustment for “growth” capex (therefore more attractive). For Altice you can also make the adjustment, and the FCF multiple is more around 7x
Bad reaction to quarterly results
ATUS leverage is north of 5.5x - much higher than all peers. I would think that along with the Draghi discount is mostly the reason for the valuation discrepancy. Would think a mix of debt paydown and equity buybacks would be the right path. Ideally getting that leverage to <5x would probably help the multiple.
yes, if they grow (Ebitda), they can increase net debt with constant leverage and buy back (even) more shares
Are you underweighting the threat from Starlink? I am an ATUS customer who would love not to be an ATUS customer, and I suspect many other people are in the same boat (aircraft carrier?)
Starlink has oligopoly busting potential, and it seems like a lot of the models would go out of the window in that case
Down to $11. What is your update Andrew? thanks!
Thank you for the comprehensive write-up. I don't follow the math here why you double the multiple -- are you back solving for the implied EV/EBITDA of 11x (given EBITDA-Capex and EV/ EBITDA-Capex --> EV)?
"I get that number by looking at after-capex cash flow: WOW’s EBITDA margins are ~39%, and their capex intensity is ~20%. So you can basically double WOW’s multiple to get their after tax cash flow multiple (i.e. 11x EBITDA equals ~22x (EBITDA - capex) multiple)."
This stock has been an absolute bust since this recommendation - vs. the broader market as well as peers. Think the debt load has a lot to do with it..
"Shareholder protection in the U.S. is much better than Europe; if Drahi tried to take ATUS private, it would put Altice in play and open them up to a competing bid from a strategic."
How so? If he tried to take it private, the Board would have to set up an independent committee, sure.
But given that Draghi has control, how could a competing bid work?
I'm not at all an expert in this matter (shareholder protection / bids), so I'm seeking enlightenment.
Thoughts on ATUS versus Liberty Global? That looks cheap as well.
Great write up, I’m a big fan of cable / fiber companies rn given the disconnect between public vs private valuations. Have you looked in to Frontier Communications? They recently emerged from bankruptcy and seem like an interesting deep value play.
Thanks for the update
Thank you for the interesting write up. What do you think about Cogeco? It's trading at a lower EV/EBITDA ratio as well, especially considering the holding setup $CCA.TO / $CGO.TO.
I loosely follow it. It's cheap, but management isn't as committed to shareholder value, and the canadian assets deserve a lower multiple than us asses.
Thank you for the reply. You are probably right about management/owner family. Why do you think the CA assets deserve a lower multiple? EBITDA margins around 48% (higher in mature CA markets) look quite good and about half the revenue is US based. Although capex/rev at 20% could be improved.
Got interested in Cogeco reading this blog post: https://www.biremecapital.com/blog/cogeco-undervalued-canadian-cable-co
I’ve been looking at Cogeco inc and comm for sometimes and especially inc has consistent and predictable fcf and rather cheap/attractive p/fcf. I would like to think the family actually cares about shareholder value as they are major shareholders, own like 60% and were approached by Rogers and Altice for their shares amd Cogeco assets. They also predicted 2-5 consistent revenue growth with costs decreasing. We can easily take a peek at their assets and a little read would show that they are prized jewels desired by big dogs and have a much higher value than the mkt cap altogether hence a rather easy choice especially when the price keeps tumbling offering better m.o.s. Lemme know how you feel…