Author Topic: CABO - Cable One  (Read 31479 times)

rishig

  • Sr. Member
  • ****
  • Posts: 435
Re: CABO - Cable One
« Reply #10 on: August 27, 2016, 09:18:48 AM »
Here's my Cable One presentation:
https://docs.google.com/presentation/d/12kFlqUAEY2OBHfWHgR66z8OBMU3f3Ne6bI7OuXKYvhU/edit#slide=id.g16686db087_0_157

My thoughts are not original, but would love to hear criticisms.


muscleman

  • Hero Member
  • *****
  • Posts: 3110
Re: CABO - Cable One
« Reply #11 on: August 27, 2016, 10:56:11 AM »
Here's my Cable One presentation:
https://docs.google.com/presentation/d/12kFlqUAEY2OBHfWHgR66z8OBMU3f3Ne6bI7OuXKYvhU/edit#slide=id.g16686db087_0_157

My thoughts are not original, but would love to hear criticisms.

The P/FCF is 30x. Too expensive for a slow grower.
I am muslceman. I have more muscle than brain!

cmlber

  • Sr. Member
  • ****
  • Posts: 458
Re: CABO - Cable One
« Reply #12 on: August 27, 2016, 12:24:45 PM »
Here's my Cable One presentation:
https://docs.google.com/presentation/d/12kFlqUAEY2OBHfWHgR66z8OBMU3f3Ne6bI7OuXKYvhU/edit#slide=id.g16686db087_0_157

My thoughts are not original, but would love to hear criticisms.

The P/FCF is 30x. Too expensive for a slow grower.

P/FCF is actually around 20x if you use a maintenance capex number.  They've been spending heavily recently to be able to offer 1gbps speeds. 

Also, it won't be a slow grower going forward, you're looking in the rear view mirror.  Growth will accelerate pretty rapidly.  The video business is declining and the Internet business is growing rapidly, so every year a larger percentage of the business is growing rapidly and a smaller part is declining.

Add to that the fact that they have barely any leverage and besides the usual opex synergies likely material revenue synergies for an acquirer and it's an obvious Charter or Altice takeout target. 


rishig

  • Sr. Member
  • ****
  • Posts: 435
Re: CABO - Cable One
« Reply #13 on: August 27, 2016, 01:05:01 PM »
Here's my Cable One presentation:
https://docs.google.com/presentation/d/12kFlqUAEY2OBHfWHgR66z8OBMU3f3Ne6bI7OuXKYvhU/edit#slide=id.g16686db087_0_157

My thoughts are not original, but would love to hear criticisms.

The P/FCF is 30x. Too expensive for a slow grower.

P/FCF is actually around 20x if you use a maintenance capex number.  They've been spending heavily recently to be able to offer 1gbps speeds. 

Also, it won't be a slow grower going forward, you're looking in the rear view mirror.  Growth will accelerate pretty rapidly.  The video business is declining and the Internet business is growing rapidly, so every year a larger percentage of the business is growing rapidly and a smaller part is declining.

Add to that the fact that they have barely any leverage and besides the usual opex synergies likely material revenue synergies for an acquirer and it's an obvious Charter or Altice takeout target.

+1. Spot on.

Munger_Disciple

  • Lifetime Member
  • Sr. Member
  • *****
  • Posts: 472
Re: CABO - Cable One
« Reply #14 on: August 27, 2016, 01:25:13 PM »
It is hard to see how CABO is a takeout target given its rich valuation (EV/EBITDA =10) and low growth. Presumably the acquirer has to pay a premium on top of this. If CABO is smart, they will use their high priced currency to acquire other smaller or similar size HSD providers that are trading at a lower valuation.

Also, Tom Rutledge at Charter is more optimistic about video business than Tom Might.

rishig

  • Sr. Member
  • ****
  • Posts: 435
Re: CABO - Cable One
« Reply #15 on: August 27, 2016, 01:47:34 PM »
It is hard to see how CABO is a takeout target given its rich valuation (EV/EBITDA =10) and low growth. Presumably the acquirer has to pay a premium on top of this. If CABO is smart, they will use their high priced currency to acquire other smaller or similar size HSD providers that are trading at a lower valuation.

Also, Tom Rutledge at Charter is more optimistic about video business than Tom Might.

- I disagree on growth. Show me another cable company that grew EBITDA margins by 1000 bps in a little over 2 years. And they are finishing rollout on GIG in 2016.
- You are comparing apples (Cable One) to oranges (Charter). A mid sized MVPD cannot make money on video.

cmlber

  • Sr. Member
  • ****
  • Posts: 458
Re: CABO - Cable One
« Reply #16 on: August 27, 2016, 02:04:02 PM »
It is hard to see how CABO is a takeout target given its rich valuation (EV/EBITDA =10) and low growth. Presumably the acquirer has to pay a premium on top of this. If CABO is smart, they will use their high priced currency to acquire other smaller or similar size HSD providers that are trading at a lower valuation.

Also, Tom Rutledge at Charter is more optimistic about video business than Tom Might.

You're arbitrarily deciding the valuation is "rich" because the multiple is higher than other cable companies.  High multiple does not always equal rich valuation.  CABO has much lower HSD pricing than peers, much lower HSD penetration, much lower fiber overlap than competitors, all rural markets so likely to stay much lower overlap, and has basically no video business. 

Again on the low growth, that is a fact of the past.  Video is a much smaller portion of the business and getting smaller and Internet is a much larger portion of the business and getting larger.  I can easily see mid to high single digit organic EBITDA growth for decades.

And the fact that Charter is much more optimistic about the video business is exactly my point.  They could get back the thousands of video subscribers that CABO shed by having a good video offering.  Revenue synergies would make it a more attractive target, all else equal.

Packer16

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 3116
  • Go Riders Go! Go Pack Go!
Re: CABO - Cable One
« Reply #17 on: August 27, 2016, 02:22:52 PM »
There are others making money on cable (SHEN being one that breaks out cable EBITDA) but I think the differentiation between video and HSI is not applicable as I have not yet seen a cable co that does not provide both.  The question in my mind is can the firm make an incremental profit by selling video over the HSI pipe? It sounds like no in CABO's case but yes in SHEN's case.

If CABO is in a growth phase you would want to project the growth and then apply a reasonable multiple to the ending EBITDA and discount it back.  It may be cheap but without a reasonable projection it is hard to tell.

Packer

Munger_Disciple

  • Lifetime Member
  • Sr. Member
  • *****
  • Posts: 472
Re: CABO - Cable One
« Reply #18 on: August 27, 2016, 02:29:32 PM »
Quote
I disagree on growth. Show me another cable company that grew EBITDA margins by 1000 bps in a little over 2 years. And they are finishing rollout on GIG in 2016.

The reason EBITDA margins are improving is because they are walking away from video business. All the cable companies have great margins on HSD service, not just CABO. So this alone does not justify a high multiple.

Quote
You are comparing apples (Cable One) to oranges (Charter).

How is that so?? Both companies are in the same business. The only difference is scale, Charter is obviously much bigger.

Quote
A mid sized MVPD cannot make money on video.

Mediacom is not walking away from video (they are still making money on video just not as much as they do on HSD), so I would say the jury is still out on this.

Munger_Disciple

  • Lifetime Member
  • Sr. Member
  • *****
  • Posts: 472
Re: CABO - Cable One
« Reply #19 on: August 27, 2016, 02:33:29 PM »
Quote
You're arbitrarily deciding the valuation is "rich" because the multiple is higher than other cable companies.  High multiple does not always equal rich valuation.

I am not arbitrarily defining the value as high. I am saying it is high compared to almost all US/Canadian cable companies.

If you think it is undervalued, what is your estimate of CABO's value? And why?