Description

NTL Incorporated is a United Kingdom and the Republic of Ireland cable/telephony/broadband company offering an unmatched "triple play" offering. The Company provides its services through five segments: ntl: home, ntl: business, ntl: broadcast, ntl: carriers and ntl: Ireland.

MANAGEMENT
Post reorg, new blood was brought in to run the business. Current CEO Simon Duffy has a solid track record. Prior to NTL, he ran the spirits division worldwide (scotch whiskey gin etc..) of Guiness
then moved to EMI for 8 years as CFO during a complex de-merger..sold off roughly 40 biz, announced buyback reduced leverage during which time $3 bn mkt cap went to $8 bn. Generally speaking, his background has been focused primarily on corporate restructurings.

Post EMI, he was CEO of World Online before joining Orange as CFO.

CATALYSTS (3-18 months)
1. Broadcast towers could be sold for between $2.0 - $2.2 billion. Existing capital loss should enable the sale to be tax efficient. Given exisiting capital structure, the company might pay a special dividend with the cash using $2 billion / 90 million shares of $22/share.

Pro forma numbers assuming the company repays debt (no dividend or share repurchase) at current levels NTLI would be trading at 5.4x EV/EBITDA.

2. Telewest merger sounds like a no-brainer. We ran through line by line cost savings that could accrue if the 2 companies merge. We estimated it could be £250m. Of which 60% accrues to NTL equity when the merger happens. The savings are all free cash flow. 8x multiple on £250 = £1.2 billion. NTL benefit could be $25/share. No deal can happen for at least 6 months post Telewest re-listing under UK law to preserve the NOLS. This benefit is a 2006/2007 impact.

SUMMARY FINANCIALS (DOES NOT INCLUDE TRANSACTIONS)
We think 2005 numbers unfold like this (data in £ and millions except per share)

Revenue = 2,500
EBITDA = 925
Int expense = 240
Capex = 325
Working cap = 20
Restru costs = 15
Free cash flow = £325
@ £1.80 = $567
FCF/share = $6.50 (using 90 million shares) or 9x FCF (11% yield)

In 2006, we think FCF/share grows to $8.20 assuming 5% revenue growth, 65% incremental EBITDA margins and lower interest expense.

VALUATION
Assuming the status quo, we believe NTLI is conservatively worth $80/$97 using 2005/2006 numbers using a 7x EV/EBITDA multiple (a discount although undeserved in our view) to the US cable peers.

At $80, NTLI FCF yield on 2006 numbers is roughly 10%.

If the above mentioned catalysts play out over the next 12-24 months, we believe you are looking at more than a double.

Catalyst

1. Broadcast asset sale.
2. Merger with Telewest.