Author Topic: CTL - CenturyLink  (Read 102121 times)

longinvestor

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 1770
  • Never interrupt compounding unnecessarily -Munger
Re: CTL - CenturyLink
« Reply #330 on: February 14, 2019, 05:19:03 AM »
Iím not out but have lightened up my holdings. I can say a lot as this stock has taught me a lot. Itís all about how tough telecom is, the capital required to just remain where you are. Thanks to competition incremental capital inures to the consumer. It pays to listen to the Omaha boys, no need to learn the same lessons for yourself.

All that said I feel lucky to be able to have the opportunity to buy Berkshire at the same price as the company is.


kab60

  • Hero Member
  • *****
  • Posts: 938
Re: CTL - CenturyLink
« Reply #331 on: February 14, 2019, 05:28:42 AM »
I think it's interesting how they wan't to get leverage down to 2.75-3.25x. Doesn't exactly scream confidence in growing revenue.

tylerdurden

  • Full Member
  • ***
  • Posts: 242
Re: CTL - CenturyLink
« Reply #332 on: February 14, 2019, 05:32:45 AM »
Petec i think ctl was trading above 24 last august so thatís less than 9 perc yield i guess. Anyways my issue is the managementís credibility. If this was on the table they should not have communicated that full commitment to the dividend. The call was like a joke too. They can not even answer why they picked the new leverage level which is not very different from previous target of low 3x. I dont care whether you put a timeframe or anything.

All i hope is with the new flexibility in capex they can show some increase in enterprise revenue. Isnít this the main pillar of this story? We all know consumer business is screwed. If they can show some stabilization stock price should recover. I also hope they were conservative again with their cost cutting estimates and they can accelerate as it was in the first phase. Perhaps i am too much hopeful. Weíll see :)

I can not blame revenue loss on the management. There are clearly big headwinds however they need to show some progress on enterprise revenues...

petec

  • Hero Member
  • *****
  • Posts: 1824
Re: CTL - CenturyLink
« Reply #333 on: February 14, 2019, 05:35:50 AM »
Petec, tbe acquisition was announced in late 2016. The standalone figures for 2016 were:

                             LVLT                          CTL                    TOTAL
Revenue               8,172 B                       17,47 B              25,642 B
EBITDA                2,865 B                         7,00 B                9,865 B       
FCF                      1,1 B                           1,817 B               2,917 B

For 2017 FCF outlook was given with app 3 B

What has improved since than till now, 24 month later?
Where are the synergies, NOLs, taxreform, costcuts if you look on the given outlook for 2019?

I wasn't thinking of 2017 - maybe I should have been but the businesses weren't run as one for most of 2017, and nor were they run by Storey who I rate better than Post.

I was comparing with 2018. The original FCF guide for 2018 was $3.15-3.35bn, but that included a lot of one-offs like tax refunds and incentive payment timings. They didn't quantify these but nor did they disagree with an analyst on the 4q call who calculated them at $550m. So at the midpoint, the guide was really $3.25-0.55=2.7bn. The new guide is $3.25 at the midpoint, so 20% up.

Now obviously FCF growth is much smaller than the combined benefits of the things you mention - synergies etc. But we always knew revenues would shrink before they grew. Your estimates for when revenues would turn were too optimistic, as were mine. That's the fundamental problem here. However the declines decelerated in this quarter. If that's a trend then it's very positive with the stock trading on a 25% FCF yield. On the call they're clear that half the consumer business is growing and 75% of the business business will grow "over time". They're also clear (as they have always been) that they expect capex to drive growth.

But this one definitely does make my head hurt - keep challenging me with numbers!

petec

  • Hero Member
  • *****
  • Posts: 1824
Re: CTL - CenturyLink
« Reply #334 on: February 14, 2019, 06:16:32 AM »
Petec i think ctl was trading above 24 last august so thatís less than 9 perc yield i guess. Anyways my issue is the managementís credibility. If this was on the table they should not have communicated that full commitment to the dividend. The call was like a joke too. They can not even answer why they picked the new leverage level which is not very different from previous target of low 3x. I dont care whether you put a timeframe or anything.

All i hope is with the new flexibility in capex they can show some increase in enterprise revenue. Isnít this the main pillar of this story? We all know consumer business is screwed. If they can show some stabilization stock price should recover. I also hope they were conservative again with their cost cutting estimates and they can accelerate as it was in the first phase. Perhaps i am too much hopeful. Weíll see :)

I can not blame revenue loss on the management. There are clearly big headwinds however they need to show some progress on enterprise revenues...

Fair point re yield but I still don't think the predominant driver of the selloff since was fears over the dividend. It was primarily a revenue/leverage issue.

I agree they shouldn't have committed so strongly to the divi - I have argued that consistently. That's why I think changing the policy enhances their credibility.

Most companies I know don't have a clear rationale for their leverage level. They might have a ceiling from the rating agencies etc., but it's always a bit of a judgement call. CTL have been talking to the bottom end of the 3-4x range for a long time and this really only cements that. They also talked about prepping the company for acquisitions in 3 years so I think this is intended to give space for that.

I agree with your comments on revenues.

LightWhale

  • Full Member
  • ***
  • Posts: 137
Re: CTL - CenturyLink
« Reply #335 on: February 14, 2019, 06:33:01 AM »
1. While Valuehalla's numbers are correct, they are only half of the equation. The other half is price, which is 50% lower than when the merger was announced. So yes, we get somewhat lower value, but we pay far less to buy it.

2. If revenue did not decline at all from Q1, it would be 350m higher for 2018. Assume that 1/4 of the decline is management volitionally disposing of lousy contracts. That leaves 270m of lost revenues a year. If that continues linearly, whereas transformation efforts save 800m annually (and cost a one time 550m over 3 years), EBITDA should grow by 350m even in the face of revenue shrinkage.

LightWhale

  • Full Member
  • ***
  • Posts: 137
Re: CTL - CenturyLink
« Reply #336 on: February 14, 2019, 06:43:52 AM »
The ďtransformationĒ (as distinct from the merger synergies) seems to go deeper than putting two companies together. Itís more about simplifying and digitalising so customers donít call you etc. If they get that right it could be a big number. $250m is less than 2% of the cost base. Iím betting they can exceed that.


Nice call, BTW

petec

  • Hero Member
  • *****
  • Posts: 1824
Re: CTL - CenturyLink
« Reply #337 on: February 14, 2019, 07:00:09 AM »
2. If revenue did not decline at all from Q1, it would be 350m higher for 2018. Assume that 1/4 of the decline is management volitionally disposing of lousy contracts. That leaves 270m of lost revenues a year. If that continues linearly, whereas transformation efforts save 800m annually (and cost a one time 550m over 3 years), EBITDA should grow by 350m even in the face of revenue shrinkage.

And revenue shrinkage *ought* to slow at some point as a) management run out of lousy contracts to cut and b) declining legacy revenues shrink in the mix vs stable/growing ones. They broke out broadband within consumer now - first time I have seen that although I haven't looked hard - and if the whole of the rest of consumer went to zero tomorrow it would be a 3.5% hit to total revenues and an absolute maximum of 9% hit to ebitda (assuming it's 100% margin which it's not). So really, 99% of the debate comes down to whether growth in $12bn of medium/small/enterprise/international/global revenue (which grew q/q for the first time in a while) can offset shrinkage in $5bn of wholesale revenue.

walkie518

  • Sr. Member
  • ****
  • Posts: 426
Re: CTL - CenturyLink
« Reply #338 on: February 14, 2019, 08:55:49 AM »
Petec i think ctl was trading above 24 last august so thatís less than 9 perc yield i guess. Anyways my issue is the managementís credibility. If this was on the table they should not have communicated that full commitment to the dividend. The call was like a joke too. They can not even answer why they picked the new leverage level which is not very different from previous target of low 3x. I dont care whether you put a timeframe or anything.

All i hope is with the new flexibility in capex they can show some increase in enterprise revenue. Isnít this the main pillar of this story? We all know consumer business is screwed. If they can show some stabilization stock price should recover. I also hope they were conservative again with their cost cutting estimates and they can accelerate as it was in the first phase. Perhaps i am too much hopeful. Weíll see :)

I can not blame revenue loss on the management. There are clearly big headwinds however they need to show some progress on enterprise revenues...

Fair point re yield but I still don't think the predominant driver of the selloff since was fears over the dividend. It was primarily a revenue/leverage issue.

I agree they shouldn't have committed so strongly to the divi - I have argued that consistently. That's why I think changing the policy enhances their credibility.

Most companies I know don't have a clear rationale for their leverage level. They might have a ceiling from the rating agencies etc., but it's always a bit of a judgement call. CTL have been talking to the bottom end of the 3-4x range for a long time and this really only cements that. They also talked about prepping the company for acquisitions in 3 years so I think this is intended to give space for that.

I agree with your comments on revenues.

absolutely think Storey is somewhat of a deal junkie and the divi cut might be behind the effort to build the business more by acquisition than by organic mechanisms or even to reduce debt

it's disappointing that management turned on a pin, it's more disappointing that they were so adamant...perhaps this is why the CFO left for T-Mobile, an internal squabble regarding the dividend and now they're saying the cut was a result of an enhanced deleveraging plan?

the debt schedule shows a lot coming due in a couple years...I would think kicking the can would be feasible, but if rates rise, interest expense will eat pretty deeply into FCF

I am conflicted...it's cheaper here than ever before and the company will be in a far stronger financial position; this was a hard decision to make and in some ways it wasn't necessary.

At the same time, I have lost confidence in Storey's ability to assess the landscape. 

The board here, too, appears very conflicted with strong arguments on both sides.  Perhaps neither building nor selling a position is the best course of action...

txvalue

  • Jr. Member
  • **
  • Posts: 65
Re: CTL - CenturyLink
« Reply #339 on: February 14, 2019, 10:45:13 AM »
2. If revenue did not decline at all from Q1, it would be 350m higher for 2018. Assume that 1/4 of the decline is management volitionally disposing of lousy contracts. That leaves 270m of lost revenues a year. If that continues linearly, whereas transformation efforts save 800m annually (and cost a one time 550m over 3 years), EBITDA should grow by 350m even in the face of revenue shrinkage.

And revenue shrinkage *ought* to slow at some point as a) management run out of lousy contracts to cut and b) declining legacy revenues shrink in the mix vs stable/growing ones. They broke out broadband within consumer now - first time I have seen that although I haven't looked hard - and if the whole of the rest of consumer went to zero tomorrow it would be a 3.5% hit to total revenues and an absolute maximum of 9% hit to ebitda (assuming it's 100% margin which it's not). So really, 99% of the debate comes down to whether growth in $12bn of medium/small/enterprise/international/global revenue (which grew q/q for the first time in a while) can offset shrinkage in $5bn of wholesale revenue.

I still disagree a bit on revenue. I think the decline is more structural than simply letting bad contracts go.  You are correct on the enterprise item but I think you should really take into account the pricing pressue that will be present for bandwidth as contracts come up for renewal. Yes companies will need more bandwidth, but the price of that bandwidth is constantly declining as other competitors try to take share.