|Shares Out. (in M):||1,081||P/E||0||0|
|Market Cap (in $M):||13,800||P/FCF||0||0|
|Net Debt (in $M):||35,573||EBIT||0||0|
|Free Cash Flow||3250|
|Unlevered Free Cash Flow||5325|
|EV to EBITDA||5.42|
|Free Cash Flow Yield||24%|
|Unlevered Free Cash Flow Yield||11%|
|NOL PV Per share||$ 1.83|
STRAIGHT EV VALUATION
|Multiple||Net Debt||Equity||Per Share||+ NOL|
|5||45500||35573||9927||$ 9.18||$ 11.01|
|5.25||47775||35573||12202||$ 11.29||$ 13.12|
|5.5||50050||35573||14477||$ 13.39||$ 15.22|
|6||54600||35573||19027||$ 17.60||$ 19.43|
|6.5||59150||35573||23577||$ 21.81||$ 23.64|
|7||63700||35573||28127||$ 26.02||$ 27.85|
|7.5||68250||35573||32677||$ 30.23||$ 32.06|
|8||72800||35573||37227||$ 34.44||$ 36.27|
SUM OF THE PARTS
|Per Share||$ 21.74|
|Per Share||$ 13.32|
SPIN-OFF OR SALE OF RESIDENTIAL BUSINESS
INITIATION OF A STOCK BUYBACK
IMPROVING LEVERAGE PROFILE, LOWERED COST OF DEBT, LOWER INTEREST EXPENSE, AND HIGHER MULTIPLE DUE TO LOWER EQUITY RISK
|Subject||Re: Where I agree and Disagree|
|Entry||02/15/2019 11:55 AM|
I wanted to get the idea out right away. I didn't have an idea obligation for many months, but I thought the opportunity is now so didn't really have time to have a fulsome discussion of the nuances of the business. We have a forum now where this can be debated in a what is a volatile stock. I think that is useful.
Many businesses have parts that are in decline and parts that are growing.
The declining aspects of Centrueylink's business are well known.
Cost cutting and business process improvement opportunities create real value and they are in abundance here as demonstarted by Management's $850 million transformation plan over three years. CTL has growth opportunities in backhaul for 5G, providing new telecomunications technology solutions for enterprises, CAF initiatives. Right now they are swimming upstream to be sure given the legacy voice and DSL businesses. But these will burn out over time. I don't think Legacy CTL is FTR but this last night it was priced the same as FTR (4x EBITDA is pretty close to 3.8x EBITDA for FTR through the market price of the bonds and FTR bond prices have implied costs for coupon deferrals in BK, consultant fees in BK, and the inability to fully invest the right amount of Capex ex).
Rarely do you get management doing the right thing. And the market punishing the stock for management doing the right thing was wrong in my view.
I don't have any opinion on QCOM but its not necessarily growing. There's a vocal voice that its about to compress. And for certain, QTL has been shrinking and they lost the Apple market share in chips. SO not all of QCOM has been or will necessarily grow. That's the only comparison I was trying to make which I think is worth considering.
|Subject||Re: Re: Re: Where I agree and Disagree|
|Entry||02/24/2019 07:55 PM|
1) Sustainable 20% FCF yield? Really? Declining Business, that should be using all of its money to may down debt, and at current levels will take them 17 years to pay down debt, doesnt sound like a sustainable FCF yield....Their Revenues are DECLINING, whcih means that their cash flows are or will be declinging too. I have to disagree
2) LVLT was not really growing. Jeff did a great job and stopping the decline and got them flatlining until he dumped it onto CTL (I say dumped, because I think he saw the problems coming). I agree, that CTLs revenue decline will moderate, but I just dont see any growth here. I think that VZ's announcement at its analyst day that its laying fiber in 60 metro's where it doesn't have service should send a chill into the all of the fiber investors, who are buying fiber at insane multiples. Regarding your later comment of him increasing "EBITDA Margins", most of the increase was a "FAKE" increase in that it came from the merger with TW Telecom, which had much better EBITDA margins, but also had much higher CAPEX spend. If you look at the EBITDA-CAPEX margin, he did increase it, but not massively. It is hard to say really how much was increased because the Global Crossing merger was also mixed into that. Almost all of the FCF increase that LVLT got was from refinancing expensive debt. Fixing their capital structure, really was the magic (Kudos to him). I just don't see him being able to do that here with CTL. He can't buy anything else that will be deleveraging, and he really can't decrease his cost of capital. He is stuck and needs to grow this business, but Telco, is in secular decline
3) I don't think there will be much increase in FCF, as the amount they are paying down will be offset by revenue declines
Bottom line - at best case, the Debt to FCF ratio is now 12x. That is just too high for a company to be paying a dividend. They are certainly in a better spot than FTR which is like 30x FCF, the yields on CTL's debt are still relatively low, but CTL is only one bad earnings away from things getting really tough.
I don't think that CTL is a great short here, but I have a hard time believing that longs will earn anything more than the dividend.....where should the stock go? Its a 7.7% dividend, so 120bps wider than ATT. While, I have issues with ATT, I don't see how CTL should ever trade anywhere near them or tighter than where it now trades