Author Topic: CTL - CenturyLink  (Read 58486 times)

petec

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Re: CTL - CenturyLink
« Reply #190 on: March 29, 2018, 11:11:39 PM »
Great, thanks.

I am torn between thinking "this is too cheap on FCF" and "this is operationally and financially levered, FCF can evaporate fast, and you don't know enough about it to handicap the odds".


What are the main threats you see to FCF?

Declining revenue on a fixed cost base - both operationally fixed but also very financially levered.

1% decline in revenue is 10% decline in FCF, all else equal (i.e. if you can't cut costs and capex to offset).

Now, obviously for the next couple of years there will be a lot of cost outs and that will more than offset declining revenue. Great.

But, after that, it's not so clear, so what you need is confidence in revenues. Given the history of this very price competitive industry, and given how hard it is to guide, and given how little I really know about it, I find it very hard to get confidence on that. I can see the positives and negatives but I don't know how to weight them.

Still very tempted though on 6x FCF.


Valuehalla

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Re: CTL - CenturyLink
« Reply #191 on: April 02, 2018, 05:05:46 AM »
Thats exactly the point. For the short and medium term there is enough costsreduction and synergies to power the FCF. And in the long run the increasing segments of the revenue will overcome the shrinking segments. There is no doubt to me.

I published here already on 13th March 2018 the revenues per segment YoY / QoQ, incl. a prognose for the future. And to me it looks good.

Also from Q3 2018 figures on, the sale of the colocation centers which was done in 2017 and reduced the revenue, will not weigh anymore on the "optic" of the YoY comparisons of the total revnenue.
« Last Edit: April 02, 2018, 05:12:23 AM by Valuehalla »
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LightWhale

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Re: CTL - CenturyLink
« Reply #192 on: April 02, 2018, 11:02:15 PM »


1% decline in revenue is 10% decline in FCF, all else equal (i.e. if you can't cut costs and capex to offset).

But, after that, it's not so clear, so what you need is confidence in revenues. Given the history of this very price competitive industry, and given how hard it is to guide, and given how little I really know about it, I find it very hard to get confidence on that. I can see the positives and negatives but I don't know how to weight them.


Another problem is the possibility that rates rise significantly. It will make it harder to roll the debt. What S&S did in LVLT was achieved against the backdrop of falling rates. There's a big difference between running downhill and uphill. CTL's >5Y bonds are trading at yields equivalent to B/-B credit rating. In Bloomberg, aggregate projection 5Y out remains relatively constant, at ~23.7B rev and ~9B EBITDA (ajd.) This leaves about 1B a year to delever. With 38B of debt, and 0.11 Debt/EBITDA multiple to delever every year, it will take CTL a while to rerate (EDIT: they can also "delever" the ratio by growing the EBITDA).

On the other hand, according to the guidance, Capex is elastic, at 16% of revenue. Also, when listening to S&S on conference calls, the subtext is that they expect undeclared revenue synergies. Plus since enterprise is 75% of revenues, it only requires a modest growth, around 1/4 of the decay in retail, to keep revenues constant. At FCF yield of 17%, and with the industry consolidating, the compensation for the risk seems adequate.

The more I read about this the more I think the capital structure is wholly inappropriate. A dividend cut here would add a lot of value.

Couldn't agree more.  Reducing debt at triple speed (3.3B annually) is much more sensible in the long term.
« Last Edit: April 10, 2018, 03:04:55 AM by LightWhale »

petec

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Re: CTL - CenturyLink
« Reply #193 on: April 03, 2018, 01:38:40 AM »
Valuehalla - I'd really appreciate it if you could lay out your revenue thesis in more detail. I have read your posts and you are right that if we extrapolate current revenue trends then revenues are going to be fine. But why should we extrapolate? Trends don't seem to me to have been too stable in this industry in the long run. So what's driving growth in your view? Is CTL going to take share, and if so why? Is industry growth going to accelerate, and if so why? I just don't know enough to answer these questions so any help is appreciated.

Lightwhale - rising rates is a headwind but the debt is so long term that they can de-lever materially in the relevant timeframe and offset any rate rise. Of course that would be much easier if they cut the dividend, which is the obvious thing to do. If they pay down debt then the market cap will rise at a stable multiple, and you'd probably get a higher multiple so the equity return could be  huge. That's far more attractive than clipping a dividend.

Valuehalla

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Re: CTL - CenturyLink
« Reply #194 on: April 03, 2018, 03:38:02 PM »
Petec- i tracked the revenue segments in all quarters from 2014 on (even in many smaller segments than mentioned in my overview & prognose) and the development is nearly all time constant: 40 % of the revenue is all time stable. 27 % is shrinking 10 % YoY all time and 33 % is increasing, all time app 4 % YoY. During the 4 years this was all time the same. In 2017 they sold collocation centers, which means a one time dropp in revenue, cause of the sales. The sale didnt effect the development of the mentioned segments. It is correct that just a slightly higher rate than the 4 % of the increasing revenue-segments, will lift the total revenue very fast. And that is what it looks like, after the last 2 quarters. Mainly powered by LVLT and one revenue segment of CTL.

Lightwhale - On the last conference call there was an information concerning the debt: weighted average cost of debt is currently about 5.7% with 65% being fix rate and 35% being variable-rate debt. So this sounds good or not to you ?
 
« Last Edit: April 03, 2018, 03:46:40 PM by Valuehalla »
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petec

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Re: CTL - CenturyLink
« Reply #195 on: April 04, 2018, 01:00:56 AM »
Thanks - that's very helpful.

Valuehalla

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« Last Edit: April 05, 2018, 10:21:19 AM by Valuehalla »
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Valuehalla

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Re: CTL - CenturyLink
« Reply #197 on: April 05, 2018, 10:08:31 AM »
Temasek Holdings (Fund of Signapur Gov)
increased AGAIN its holdings in CTL and holds now 11% reported on 4th April 2018, last reported  9,7 % on 27th March 2018 and before they hold 8,7 %.

http://ir.centurylink.com/Cache/392908984.pdf

Temasek was an anker investor of LVLT for many years. Their former share of LVLT was 18 %.
LVLT shareholders would own 49% of the new entity. So they increased their holdings since the acquisition was finalized till now.

ANKER INVESTORS ARE NOW:
Temasek                                      11,0 %
Corvex (Keith Meister)                   6,7 %
Longleaf (Mason Hawkins)             6,7 %
« Last Edit: April 05, 2018, 10:11:51 AM by Valuehalla »
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Valuehalla

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Re: CTL - CenturyLink
« Reply #198 on: May 09, 2018, 07:34:20 AM »
Interesting article about CTL:

https://seekingalpha.com/article/4171580-centurylink-buy-solid-dividend-keep-increasing-revenues?auth_param=1emn1k:1df50bo:b9cacdac94abcddea983ea60af152836&uprof=44&dr=1

Today we will get the Q1 figures.

If the revenue is higher than 6B for the first quarter, this would be a very strong sign.
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Valuehalla

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Re: CTL - CenturyLink
« Reply #199 on: May 09, 2018, 01:57:57 PM »
1Q 2018 Earnings are out:

http://ir.centurylink.com/Cache/1001236852.PDF?O=PDF&T=&Y=&D=&FID=1001236852&iid=4057179

http://ir.centurylink.com/Cache/1001236853.PDF?O=PDF&T=&Y=&D=&FID=1001236853&iid=4057179

- No positive or negative surprise
- all figures in the range of the expectations
- outlook for full year 2018 is reiterated
- Revenue was 5,945 B in Q1
- Free Cash Flow: 852 M in Q1; expected for the full year 3,15 to 3,35 B
- MarketCap was 19,464 B on 18,04 $ closing price today
- Long-Term Debt & Credit Facilities down from 37,238 B end Q4 to 36,94 B end of Q1

Conference call:
- Dividend will be maintained, dividend payoutrate in 70s %
- Sales in second quarter will be better than first quarter, which had just 90 days
- EBITDA will increase every quarter during this year & next year, margins will improve
- They expect "good grows in FCF during the next few years", driven by EBITDA increases
- SD-WAN revenue grew 45%, but represented less than 1% of total revenue
- net debt to adj EBITDA ratio at 4.3x; expect to reach low end of target leverage range of 3x to 4x by end of 2019, driven by growth in adjusted EBITDA
- effective income tax rate in Q1 was 51% due to tax reform and purchase price accounting adjustments. Expect tax rate to be lower in subsequent quarters. Overall expect effective tax rate app 25% in full year 2018


Transcript:
https://finance.yahoo.com/news/edited-transcript-ctl-earnings-conference-054621149.html?.tsrc=applewf&guccounter=2
« Last Edit: May 10, 2018, 11:49:34 PM by Valuehalla »
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