ALTICE USA INC ATUS
November 15, 2017 - 6:25pm EST by
regency435
2017 2018
Price: 20.26 EPS 0 0
Shares Out. (in M): 740 P/E 0 0
Market Cap (in $M): 15,000 P/FCF 10 0
Net Debt (in $M): 21,100 EBIT 0 0
TEV ($): 36,100 TEV/EBIT 0 0

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Description

 

Altice USA Inc. (ATUS-$20.26)

Shares O/S: 740 million

Market Cap: $15 billion

Net debt: $21.1 billion

EV: $36.1 billion

52 Week Hi-Lo: $18.73 – $35.29

 

We recommend purchase of Altice USA, Inc (70% owned by Netherlands traded Altice NV):

 On 2018 estimates - EV/ EBITDA of 8.25x, FCF yield of 10%.  Debt / 2017e EBITDA 5.2x to 4.4x YE 2018

  • Excellent management team - same assets doing $4.0B EBITDA this year did $2.7B EBITDA in 2015
  • Street overly focused on video – broadband growing rapidly, 40% of revenue & we think 60%+ of EBITDA
  • June 2017 IPO at $30.  Altice NV issues (weak France biz) not relevant.  ATUS Q3 results were excellent


Background
.  ATUS is a combination of the Cablevision (acquired June 2016 $17.7B EV) and Suddenlink/Cequel (acquired December 2015 $9.1B EV) cable businesses acquired by Altice NV.  Altice NV brought ATUS public in June 2017 at $30.00 per share and continues to own 70% of the company while BC Partners and Canada Pension Plan (both were equity partners in the Suddenlink deal) own 15%.  Including insider ownership, float is less than 10%.

 

Cablevision.  Surrounding the NYC area…Long Island, Bronx, Brooklyn, Northern NJ and some of Connecticut.  High-income areas, dense population, FIOS overlap of about 50% has been a fact of life for several years.  ATUS management targeted $900 million in cost reductions at the acquisition.  2.4m video subs, 2.7m internet subs, average residential monthly revenue per customer $156.88 .  Q3 revenue and EBITDA of $1.7 billion and $714 million.  Should do $6.7 billion revenue / $2.8 billion EBITDA in 2017, up from $6.6 billion revenue / $1.8 billion EBITDA in 2015.  EBITDA margins have increased from 28% in 2015 to 43% in Q3.

 

Cequel (Suddenlink).  Southwest Texas, Oklahoma, Louisiana, Arkansas and West Virginia.  Lower income, more rural, less competitive with telecoms (offering DSL) as the key competitors.  ATUS management targeted $215 million in cost reductions at the acquisition. 1.1m video subs, 1.4m internet subs, average residential monthly revenue per customer $110.64.  Q3 revenue and EBITDA of $663m and $312m.  Should do $2.6 billion revenue / $1.3 billion EBITDA in 2017, up from $2.4b revenue and $949m EBITDA in 2015.  EBITDA margins have improved from 39% in 2015 to 47% in Q3.  These less penetrated broadband markets offer solid internet growth.

 

ATUS Financials.  Important to note the following when analyzing ATUS financials:

Video gross margins (revenue less programming costs) are 40% currently and declining, with programming costs per sub growing at HSD rates annually - higher retrans to network broadcasters/general content price increases. With customer service costs and cable box cap-ex there isn’t a lot of FCF in video. 

The real money is in broadband.  No programming costs, no expensive cable boxes.  Gross margins likely in the 90’s% and EBITDA margins likely in the 70% range.  With residential broadband penetration of U.S. households continuing to increase + cable broadband taking share from DSL + continued customer uptake of higher speeds, the broadband  businesses has been growing at a double digit rate.

The net of these points is that while overall revenue growth is quite low given video at 45% of revenue and voice (declining) at 9% of revenue, what really matters is revenue growth at internet, which is 40% of revenue.  ATUS still has some cost to take out (we estimate close to $200 million).  These cost reductions + organic growth will bring $4.4 billion EBITDA in 2018.  Post the impact of cost reductions the street is estimating 2%-3% revenue growth and 5% EBITDA growth annually.

We estimate at least $1.5b of FCF going forward with NOL usage in 2018 and 2019 running out by 2020 but FCF still at the $1.5b level then given EBITDA growth.  Management very comfortable with debt at 5.0x-5.5x given stability of the business.  Acquisitions are an obvious use of cash but there does not seem to be an obvious good size target currently.  An ongoing cash dividend might help correct ATUS discount valuation while also providing a no doubt helpful cash flow stream to parent Altice NV.

 

Summary.  2019 EBITDA should come in at $4.5 to $4.6 billion with net debt at $18 billion given $3+ billion of cumulative FCF.  A 9x EBITDA multiple would bring a $30 share price, equivalent to a 15x FCF multiple – at that point Debt/EBITDA would be less than 4x and broadband would represent nearly 70% of EBITDA.  A $30.60 share price by YE 2019 is a 20% IRR from today.

 

Disclosure: We are long ATUS.

 

 

Catalyst

 We are at management's leverage target.  Future use of FCF for capital returns or acquisitions. 

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    Description

     

    Altice USA Inc. (ATUS-$20.26)

    Shares O/S: 740 million

    Market Cap: $15 billion

    Net debt: $21.1 billion

    EV: $36.1 billion

    52 Week Hi-Lo: $18.73 – $35.29

     

    We recommend purchase of Altice USA, Inc (70% owned by Netherlands traded Altice NV):

     On 2018 estimates - EV/ EBITDA of 8.25x, FCF yield of 10%.  Debt / 2017e EBITDA 5.2x to 4.4x YE 2018


    Background
    .  ATUS is a combination of the Cablevision (acquired June 2016 $17.7B EV) and Suddenlink/Cequel (acquired December 2015 $9.1B EV) cable businesses acquired by Altice NV.  Altice NV brought ATUS public in June 2017 at $30.00 per share and continues to own 70% of the company while BC Partners and Canada Pension Plan (both were equity partners in the Suddenlink deal) own 15%.  Including insider ownership, float is less than 10%.

     

    Cablevision.  Surrounding the NYC area…Long Island, Bronx, Brooklyn, Northern NJ and some of Connecticut.  High-income areas, dense population, FIOS overlap of about 50% has been a fact of life for several years.  ATUS management targeted $900 million in cost reductions at the acquisition.  2.4m video subs, 2.7m internet subs, average residential monthly revenue per customer $156.88 .  Q3 revenue and EBITDA of $1.7 billion and $714 million.  Should do $6.7 billion revenue / $2.8 billion EBITDA in 2017, up from $6.6 billion revenue / $1.8 billion EBITDA in 2015.  EBITDA margins have increased from 28% in 2015 to 43% in Q3.

     

    Cequel (Suddenlink).  Southwest Texas, Oklahoma, Louisiana, Arkansas and West Virginia.  Lower income, more rural, less competitive with telecoms (offering DSL) as the key competitors.  ATUS management targeted $215 million in cost reductions at the acquisition. 1.1m video subs, 1.4m internet subs, average residential monthly revenue per customer $110.64.  Q3 revenue and EBITDA of $663m and $312m.  Should do $2.6 billion revenue / $1.3 billion EBITDA in 2017, up from $2.4b revenue and $949m EBITDA in 2015.  EBITDA margins have improved from 39% in 2015 to 47% in Q3.  These less penetrated broadband markets offer solid internet growth.

     

    ATUS Financials.  Important to note the following when analyzing ATUS financials:

    Video gross margins (revenue less programming costs) are 40% currently and declining, with programming costs per sub growing at HSD rates annually - higher retrans to network broadcasters/general content price increases. With customer service costs and cable box cap-ex there isn’t a lot of FCF in video. 

    The real money is in broadband.  No programming costs, no expensive cable boxes.  Gross margins likely in the 90’s% and EBITDA margins likely in the 70% range.  With residential broadband penetration of U.S. households continuing to increase + cable broadband taking share from DSL + continued customer uptake of higher speeds, the broadband  businesses has been growing at a double digit rate.

    The net of these points is that while overall revenue growth is quite low given video at 45% of revenue and voice (declining) at 9% of revenue, what really matters is revenue growth at internet, which is 40% of revenue.  ATUS still has some cost to take out (we estimate close to $200 million).  These cost reductions + organic growth will bring $4.4 billion EBITDA in 2018.  Post the impact of cost reductions the street is estimating 2%-3% revenue growth and 5% EBITDA growth annually.

    We estimate at least $1.5b of FCF going forward with NOL usage in 2018 and 2019 running out by 2020 but FCF still at the $1.5b level then given EBITDA growth.  Management very comfortable with debt at 5.0x-5.5x given stability of the business.  Acquisitions are an obvious use of cash but there does not seem to be an obvious good size target currently.  An ongoing cash dividend might help correct ATUS discount valuation while also providing a no doubt helpful cash flow stream to parent Altice NV.

     

    Summary.  2019 EBITDA should come in at $4.5 to $4.6 billion with net debt at $18 billion given $3+ billion of cumulative FCF.  A 9x EBITDA multiple would bring a $30 share price, equivalent to a 15x FCF multiple – at that point Debt/EBITDA would be less than 4x and broadband would represent nearly 70% of EBITDA.  A $30.60 share price by YE 2019 is a 20% IRR from today.

     

    Disclosure: We are long ATUS.

     

     

    Catalyst

     We are at management's leverage target.  Future use of FCF for capital returns or acquisitions. 

    Messages


    SubjectParent co
    Entry11/16/2017 12:39 PM
    Memberelehunter

    Thanks for the idea.  Given that this is 70% owned by Altice N.V. which has 98% of voting rights, isn't it fair to say that problems at the parent could affect the US entity, at least from an investor perception point of view?  ATC NA has leverage of over 5.5X and EBITDA is at serious risk - everything is going against them.  The 5 year CDS spread on the parent just blew out to about 500 bps indicating a 35% probability of default by 2022 (up from just 15% 2 weeks ago).  I just wonder if there is anything in Altice bond covenants (which are at the Cablevisioni and Suddenlink level) that protects against a siphoning of cash from these opcos to the holdco if the holdco gets into a liquidity crisis.  I don't see as big a move in the opco CDS but it would be something to watch.  


    SubjectCord Thining
    Entry11/16/2017 01:25 PM
    Memberbedrock346

    I was short this since the IPO and covered way too soon. That said, FIOS is everywhere in CVC markets, the 90% broadband margins to me are highly suspect based on cost accounting. Every MSO seems to make no $ on video now which to me is fake news. 9x is a very high multiple for a high capx business with increasing competition and customer able to cut bill drastically by going bband only. Not to mention the wireless threat. Put 6-7x on shaky cash flow and the stock is much lower. Also they aren't even going to sell themselves, they are a buyer of cable assets! Not sure the stock is a short here, btu sector is way out of favor with some more interesting plays out there.


    SubjectRe: Parent co
    Entry11/16/2017 01:44 PM
    Memberancap

    Ample RP capacity IIRC, so governors are probably outside of the scope of the covenants (ratings, leakage to minority owners, etc.)


    SubjectRe: Parent co
    Entry11/16/2017 05:01 PM
    Memberregency435

    Altice NV debt/EBITDA is only 4x if you consider the following:

    (1) exclude non-recourse ATUS debt of 18 billion euro ($21 billion U.S.)....we of course exclude ATUS EBITDA as well 

    (2) Altice NV owns 9 billion euro worth of ATUS shares - i'd bet that Charter would buy ATUS in a minute

    Investor perception is what it is - will change on a dime so i dont worry about it.

    I can't see a way for Altice NV to dip into publicly traded ATUS cash without all ATUS shareholders benefiting. 


    SubjectRe: Cord Thining
    Entry11/16/2017 05:22 PM
    Memberregency435

    FIOS has been in Cablevision markets for years.  Cablevision revenue (ex Newsday) has been up about 3 percent in each of the first three quarters of 2017.

    Broadband margins not suspect at all - programming expense is 50% of total expense and relates entirely to the video business. 

    The business has high cap-ex, thats true, but it also has a ton of FCF - $1.5 billion this year, 10% FCF yield.  

    Video subs will decline somewhat over time (largely offset by price increases) but the triple play bundle does keep a lot of customers in video. 

    Agree, the company not likely to be sold, but buying more assets is not a bad thing considering they have increased EBITDA in their existing assets from $2.7B to $4B in only two years.

    ATUS is at its target leverage ratio now and there does not seem to be many acquisition candidates so a capital return program is a definite possibility.


    SubjectDistressed sale
    Entry11/17/2017 10:07 AM
    Memberpuppyeh

    Lets say ATC NA stock keeps getting killed (it is down another 12%) and Drahi is forced to sell ATUS (I think the only asset he has that is really saleable that moves the needle at ATC group in terms of debt reduction):

    - how much do you think they could realistically sell at a non-fire sale price?

    - are you comfortable that happens at a premium to current prices?

    Basically do you think if they run an auction now for the asset the price is at least IPO level even in a pretty distressed seller scenario? As i think that is what you need to look at


    SubjectRe: Distressed sale
    Entry11/17/2017 11:19 AM
    Memberregency435

    ATUS trading 8.2x 2018 EBITDA.  Very hard for me to imagine a multiple lower than that.  ATUS management has said that if they had the programming rates of Charter/Comcast that its own EBITDA would be 400 bps higher, so Charter/Comcast if they owned this could run it at higher margins (although they might choose not to).  I would say i'm comfortable that it wouldn't be done below this valuation, back to the IPO price i couldn't say but you don't need to get back to the IPO price to earn a return from here.

    Funny that a few weeks ago the world was talking about Altice buying Charter. 

    Q3 Earnings Call - Dexter Goei

    "Moving to Slide 26, we summarize Altice USA's margin progression where you can see we've now reached 44.1% adjusted EBITDA margin in Q3 on a U.S. GAAP basis with operating free cash flow margins at 32%. I want to remind you again that our largest peers have about a 4 percentage point gross margin advantage over us because of their scale on the programing side. So adjusting for this, our EBITDA margin would be more or like 48%."

     


    SubjectRe: Re: Distressed sale
    Entry11/17/2017 11:31 AM
    Memberpuppyeh

    gotcha. agreed on how quickly this thing has moved but thats a levered equity stub for you (im talking about ATC). i really want to like this and agree with most of what you've said - i just think you'll have a wall of stock coming to market in short order when ATC turns seller so am a little gunshy


    SubjectRe: Re: Re: Re: Re: Distressed sale
    Entry11/17/2017 04:05 PM
    Memberbdon99

    yeah, i think that's right. I hadn't netted the 2.2 bn so I was thinking more like ~7.25 EUR / share value at ATC. I suppose it's more correct to net it in a strict scenario, although I'd note that ATC is cash flowing and so it has interim debt repayment power prior to maturities. Also, these amounts were naturally higher before ATUS was dragged down - likely by ATC - and so there appears to be some form of un-virtuous cycle going on as well which makes things worse.


    SubjectRe: Cord Thining
    Entry11/17/2017 05:17 PM
    Membershoobity

    @bedrock, would love your thoughts on who in the sector you find attractive. 

    Not sure the stock is a short here, btu sector is way out of favor with some more interesting plays out there.


    SubjectAltice Press Release..........Altice Responds to Recent Market Speculation and Misinformation
    Entry11/19/2017 10:05 PM
    Memberregency435

    Altice NV: Altice Responds to Recent Market Speculation and Misinformation 
    Sunday, November 19, 2017 11:30:00 PM (GMT)

     

            Altice Responds to Recent Market Speculation and Misinformation
    
    November  20, 2017 - Altice N.V. (Euronext: ATC,  ATCB) today responds to recent
    market speculation and misinformation.
    
     1. Altice is not in preparation of a cash raising by means of an equity- or
        equity-linked issuance and has no intention to pursue such action
    
    Altice  confirms that it is not in preparation  of a cash raising by means of an
    equity-  or equity-linked  issuance and  has no  intention to pursue such action
    within the group including Altice USA.
    
    Altice confirms it had 1,205.3 million shares outstanding excluding any treasury
    shares as of the end of Q3 2017.
    
     2. Next Alt S.à.r.l. ("Next") does not have any margin loan exposure to Altice
        and has not sold any material number of shares since the IPO
    
    Altice confirms that its majority shareholder Next does not hold any margin loan
    exposure related to Altice.
    
    Altice  further confirms that Next has not  sold any shares since the Altice IPO
    except  approximately 0.3 million shares sold to  group managers as disclosed in
    2016.
    
    Information  service  provider  Bloomberg  L.P.  issued  on November 12, 2017 an
    information  update, correcting its total free  float shares count for Altice by
    an  additional approximately 81 million.  The impression in  the market that 81
    million  shares were sold by Next related to the correction by Bloomberg L.P. is
    factually incorrect.
    
     3. Management has not taken any active decision to sell Altice shares
    
    The  sale of shares attributed to  Altice's Chief Financial Officer in September
    2017 was  executed by  a financial  institution on  maturity of  a funded collar
    originally entered into in March 2015.
    
    Altice's  General Secretary  reported the  sale of  shares between September and
    November  2017. The  sale  of  these  shares  occurred  due  to  unforeseen life
    circumstances.
    
     4. Altice plans to de-lever its balance sheet and does not have margin loan
        exposure within the group
    
    Clear de-leveraging plan
    Altice  confirms its plans to  de-lever its balance sheet  and bring leverage in
    line  with or below its stated targets over time. Altice reiterates that it will
    not pursue any new meaningful M&A opportunities.
    
    In  addition to the  operational turnaround in  France, the disposal of non-core
    assets  within Altice Europe is central to Altice's de-leveraging plan.  Certain
    non-core   assets   have   already  been  identified  including  Altice's  tower
    portfolio.   Altice has initiated processes to  effect disposals as early as the
    first half of 2018 and will update investors in due course on its progress.
    
    Absence of any corporate margin loans
    Altice  confirms that the Altice  Corporate Financing facility with relationship
    banks  at group  level is  guaranteed by  Altice and  does not  have maintenance
    covenants or share price triggers.
    
    Altice  confirms  that  it  has  no  margin  loan  exposure  with respect to its
    ownership in Altice USA.
    
    Altice  has a robust, diversified and  long-term capital structure with a strong
    liquidity position and no recourse or cross-default clauses between debt silos
      * Group weighted average debt maturity of 6.3 years:
    
          * No major maturities at Altice France (SFR) until 2022;
          * No major maturities at Altice International until 2023;
          * No maturities at Altice Luxembourg until 2022;
          * No maturities at Suddenlink until 2020;
          * Near-term maturities at Optimum covered by $2.3 billion revolving
            facility, cash on balance sheet and cash flow generation.
      * Altice further confirms that liquidity of the group is strong with
        approximately €1.66 billion of cash on balance sheet (including €0.4 billion
        at corporate level) as of the end of Q3 2017 and approximately €3.5 billion
        of undrawn and available revolving facilities with an average maturity of
        3.9 years.
    
    Regulated Information
    This  press release  contains inside  information within  the meaning of Article
    7(1) of the EU Market Abuse Regulation.
    
                                         # # #
    
    Contacts
    Head of Investor Relations Altice N.V.
    Nick Brown: +41 79 720 15 03 / nick.brown@altice.net
    
    Head of Communications Altice N.V.
    Arthur Dreyfuss: +41 79 946 49 31 / arthur.dreyfuss@altice.net
    
    About Altice N.V.
    
    Founded in 2001 by entrepreneur Patrick Drahi, Altice is a convergent global
    leader in telecom, content, media, entertainment and advertising. Altice
    delivers innovative, customer-centric products and solutions that connect and
    unlock the limitless potential of its over 50 million customers over fiber
    networks and mobile broadband. The company enables millions of people to live
    out their passions by providing original content, high-quality and compelling TV
    shows, and international, national and local news channels. Altice delivers live
    broadcast premium sports events and enables millions of customers to enjoy the
    most well-known media and entertainment. Altice innovates with technology in its
    Altice Labs across the world. Altice links leading brands to audiences through
    premium advertising solutions. Altice is also a global provider of enterprise
    digital solutions to millions of business customers. Altice is present in 10
    territories from New York to Paris, from Tel Aviv to Lisbon, from Santo Domingo
    to Geneva, from Amsterdam to Dallas. Altice (ATC & ATCB) is listed on Euronext
    Amsterdam.
    
    
    
    
    Altice Responds to Recent Market Speculation and Misinformation:
    http://hugin.info/156399/R/2150696/825579.pdf
    
    
    
    This announcement is distributed by Nasdaq Corporate Solutions on behalf of Nasdaq Corporate Solutions clients.
    The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
    
    Source: Altice NV via GlobeNewswire
    
    
    
    

     

    Countries: Switzerland, France, Netherlands, Portugal, United States 
    Industries: Broadcasting & Telecommunications, Entertainment & Leisure, Finance & Insurance, Computing & Information Services, Services 
    Languages: English 
    Primary Identifiers: ATC-NL 


    SubjectRe: Altice Press Release..........Altice Responds to Recent Market Speculation and Misinformation
    Entry11/19/2017 11:05 PM
    Memberbedrock346
    • Except, atc na original plan was more leverage, deals (chtr?) and world domination. They have zero credibility and numbers are softening and multiples are still high. They didn’t sell enough atus stock in 30s. Too late now.

    SubjectRe: Re: Altice Press Release..........Altice Responds to Recent Market Speculation and Misinformatio
    Entry11/20/2017 11:00 AM
    Memberregency435

    My recommendation is long ATUS - i have no real opinion on Altice NV, though i dont think they are in severe financial distress.  Whether or not they should have sold more ATUS has no real bearing on the recommendation.

    In terms of management credibility - the U.S. business has done exceptionally well and the market here is much different than in france.

    In terms of multiple being too high - ATUS trades 8.2x 18e EBITDA with a mid 40's EBITDA margin.  Charter trades 10x 2018 EBITDA with an expected margin of 38%, there is room for the margin to grow as they integrate TWC, they are levered 4.5x and buying back massive amounts of stock.  Cable One trades 10x 2018e EBITDA with a 46% margin, is only levered 2.5x.

    ATUS trades at a 2x turn discount which seems excessive to me.  I dont need them to conquer the world and absent any M&A they will be low 4's debt/EBITDA by end of 2018 at which point capital returns are highly likely.


    SubjectRe: Re: Re: Altice Press Release..........Altice Responds to Recent Market Speculation and Misinform
    Entry11/20/2017 11:08 AM
    Memberbedrock346

    I think chtr multiple is too high and fluffed up by m and a that looks dicey right now, not that atus is too low, but we shall see. It's not as overvalued as at IPO.


    SubjectAre ATUS margins sustainable/healthy?
    Entry11/20/2017 01:23 PM
    Memberjso1123

    I'm surprised no one has brought up the key question here which is sustainability of ATUS margins.  If ATUS mgmt is simply wringing out in efficiencies and operating better/applying ZBB/etc, then ATUS works.  But is there a risk they have cut into muscle and are taking decisions to drive short term performance at the expense of long-term?  fwiw CHTR mgmt says they are and believes ATUS actions will drive margins near-term but run real long-term risk.  100% anecdotally - I am an optimum customer and needed to speak to someone there recently on a repair and the customer service process was a nightmare, took days to get someone on the phone.  


    SubjectRe: Are ATUS margins sustainable/healthy?
    Entry11/20/2017 01:44 PM
    Memberbedrock346

    BTW, I think it was old TWX or CHTR CEO who made this point when CVC deal was done that hard to see how much margin can be taken out. CVC service was notoriously poor under Dolans. I would argue that is where cost needs to be added. Also, one big dumb pipe with at least fios competing and wireless and cord cutting, does not sound better than tripple play quasi monopoly.


    SubjectRe: Re: Re: Altice Press Release..........Altice Responds to Recent Market Speculation and Misinform
    Entry11/20/2017 05:41 PM
    Memberpuppyeh

    "I dont need them to conquer the world and absent any M&A they will be low 4's debt/EBITDA by end of 2018 at which point capital returns are highly likely."

    wasnt that the same/similar argument for ATC NA? until they missed on earnings, the markets soured on them and equity remarked 50% lower in a week because of the leverage, making the stock buyback argument irrelevant...and this is with high yield markets still super benign. What happens if - in the same time frame you envisage - the Fed has tightened 3-4 more times?

    not saying this ends the same way but the increased leverage profile makes this a much, much trickier trade than some other telco assets trading at high multiples. You say 8x EV/EBITDA but what is the multiple of FCF? Are you sure you aren't just comping one less expensive stock (with a ton more leverage) to a bunch of more expensive stocks?

     


    SubjectRe: Re: Re: Re: Altice Press Release..........Altice Responds to Recent Market Speculation and Misin
    Entry11/20/2017 06:06 PM
    Memberregency435

    Altice NV came down because of poor performance in their business, not necessarily because of high leverage. 

    Altice USA performance has been excellent. 

    High leverage I agree is a risk, but FCF at Altice USA is massive.  The FCF yield is 10% (far higher than the comps).


    SubjectRe: Are ATUS margins sustainable/healthy?
    Entry11/20/2017 06:28 PM
    Memberregency435

    Cablevision EBITDA margins were 28% in 2015 which is quite low (Charter margins are 37%).  Cabo margins are 46.5%. 

    Altice has a very high residential customer ARPU of $140 driven by dense high income Cablevision NYC area. Charter residential ARPU is $110.

    The risk you mention is possible but Altice owns Cablevision for over a year and Suddenlink almost two years, so far there doesnt seem to be any impact from the cost cuts (if the cost cutting was an issue you would think there'd be some impact by now). 

    Malone has said some very complimentary things about Drahi.

     


    SubjectRe: Re: Re: Re: Re: Re: Re: Re: Re: Re: Altice Press Release..........Altice Responds to Recent Mark
    Entry11/28/2017 11:50 AM
    Memberbedrock346

    ATC NA actions make no sense to me. Maybe its to get a currency again for deals, maybe margin loans, maybe the business just isn't as profitable in terms of FCF as they report for whatever reason.

    They aren't selling assets from strength is for sure.


    SubjectRe: Re: Re: Re: Re: Re: Re: Re: Re: Re: Altice Press Release..........Altice Responds to Recent Mark
    Entry11/28/2017 01:04 PM
    Memberbdon99

    I didn't find the actions so desperate in the sense that I would figure large ATC NV shareholders would be urging the company to 'clear the air' if they thought there was misinformation out there. As for the asset sale discussions, I was a bit surprised by that but again - in another light - i thought the company was demonstrating some responsiveness to the investor base' desire for lower leverage, while parting with some LatAm assets and towers that aren't core. that said, I appreciate you guys raising this angle... if it is the case that there are margin loans at play, what do you think the implications are, ie, what does it all mean going forward? As i mentioned in a prior thread, seems like there should be a floor well above zero given the value of the ATUS holdings, but that line of thinking hasn't worked thus far.


    SubjectRe: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Altice Press Release..........Altice Responds to Recent
    Entry11/28/2017 03:52 PM
    Memberpuppyeh

    what is so hard to understand about the price action? ATC NA was always a levered equity stub - when the myth evaporates the re-rating can be vicious even if actual deterioration in performance wasn't that bad (look at PAH, for eg). WHen that happens for levered equity stubs - even those with a decent runway, as is the case here - management is forced to delever by any measure they can.

    what complicates the situation here is that there is a real chance the French business is not fixable (they have been trying to do so ever since Numericable merger) and frankly France is just a terrible, terrible market where the players seem stuck in this perpetual negative investment loop where more capex is never rewarded with decent incremental returns on capital. this means the huge SFR debt may not actually be rollable in 2022, ie they need to (potentially) sell off enough stuff/find a way to divest France between now and then.

    yes, this is plenty of time, although they are clearly hampered because there isnt much they can really sell (that moves the needle). clearly if they still had ATUS held off market they would be in a much better position; ATUS is basically unsellable now (from a price perspective there is nothing to gain for ATC selling it anywhere near $18) meaning they have to sell off bits and bobs, sale/leaseback the towers (I think a terrible thing longer term), and then try to divest France or merge it with Bouygues.

    Ironically this may be the shake-up the French market needs to motivate consolidation and either way it goes someone like Bouygues is very well positioned (either they buy most of SFR while committing only a tiny amount of capital; or SFR continues to hemorrage share and they pick up a good chunk of it).

    i am looking at buying the ATC stub (ie stripping out ATUS) and hedging with SFR CDS...but havent done all the work yet.


    SubjectAltice USA - Bunch of thoughts
    Entry11/28/2017 06:06 PM
    Memberregency435

    Spoke to IR today, there are no margin loans against Altice NV or Altice USA stock.

    We are really focused on Altice USA, not Altice NV.

    Altice USA as mentioned previously is doing very well.  Debt/EBITDA will go below 5x by mid 2018 and will consider a dividend then - that would certainly help the parent Altice NV. 

    The company expects minimum annual FCF of $1.5 billion going forward ($2+ per share).  A $750m dividend would be $1 per share.    

    Altice USA can't really do deals at this equity level.  This might bother anyone who bought on the IPO.  I'm fine with no deals as they would rapidly de-lever.

    The Altice NV problems in my mind really have nothing to do with Altice USA.  The debt is siloed and Altice USA is a separate public company. Altice NV can't just come in and help themselves to Altice USA cash without all shareholders benefiting. 

    France includes a wireless business, big payments for sports rights etc.  This is very different from the U.S. cable business.  

    I don't think it will happen but would Charter not pay 10x EBITDA for Altice USA? Time Warner markets adjacent to Cablevision, very significant programming cost synergies etc.  10x 2018e EBITDA less YE 2017 debt gets you to $30 per share.  A 9x multiple gets you to $25 per share.

    Any way you look at it, Altice USA either de-levers, pays big dividends or in a very extreme scenario sells out at a large premium.  Most likely they do a combination of dividend and de-lever and resume M&A perhaps sometime late next year.  Meantime it's a 10% FCF yield, albeit with leverage.   


    SubjectAltice USA Update
    Entry01/16/2018 01:04 PM
    Memberregency435

    Altice NV, owner of 67% of Alice USA (ATUS), is distributing its ATUS stake to its shareholders. 

    • Altice USA goes from 10% free float to 42% free float (312.5m shares – over $7B of mkt cap) 

    • Patrick Drahi and related entities along with USA management will own 43% of Altice USA

    • PE sponsors (BC Partners and Canada Pension Plan) will own 14.6% of Altice USA

    Concurrently, Altice USA managemaent announced the following (all happening at Altice USA):

    • $1.5B (about $2 per share) special dividend to Altice USA shareholders prior to the spin

    • New target leverage of 4.5x to 5.0x, down from previous target of 5.0x to 5.5x

    • Authorization of a $2B share buyback  - they are likely to be quite active in 2018

    Leverage Analysis:

    • 2017 revenue and EBITDA should be $9.3B and $4.0B – 2018e is $9.6B and $4.35B

    • 9/30/17 debt to TTM EBITDA is 5.4x - 2017 projected YE debt to 2017e EBITDA is 5.2x

    • Without any dividend or buyback, 2018 YE debt to EBITDA would decline to 4.4x

    • For 2018 we assume $1.5B dividend (in q2) plus $500m buyback mostly offset by $1.5B FCF

    • With dividend, buyback and EBITDA growth YE 2018 debt/EBITDA should be 4.9x, within target level

    Valuation:

    • Current quote of $22.60 less the $2 dividend is a 10x FCF multiple on $2+ of annual FCF per share

    • Post 2018 (which includes some acquisition related cost savings in EBITDA), we assume 3% - 4% annual EBITDA growth, lower than industry given high penetration and margins particularly at Cablevision

    It sounded on the call like M&A is not a current priority (doesn’t seem to us like there is anything obvious to buy).  If ATUS keeps spending $1.5B a year buying back stock, debt/EBITDA would be 4.5x by year-end 2020.  At that point absent acquisition we think the company could get sold to Charter or Comcast – 10x EBITDA would bring $40 per share plus the $2 dividend (a 9x multiple brings $33 per share in value plus the $2 dividend).

    In terms of share price volatility...selling pressure on ATUS in the near term (through and after the Q2 spin) seems likely.  There will be a large buyback in place.  Personally, I’m more focused on the value here. 

     

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