Author Topic: CTL - CenturyLink  (Read 71415 times)

longinvestor

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 1629
  • Never interrupt compounding unnecessarily -Munger
Re: CTL - CenturyLink
« Reply #230 on: November 02, 2018, 09:46:49 PM »
I will worry if they change the tune he sang as recently as last week. So far nothing but greener pastures for him. Wildcard could be if they ink some revenue deal with TMUS. Or something bigger with Masa down the road.

How would you envisage a revenue deal with TMUS working?

CTL simply takes over Sprint's enterprise business / customers. It has been a continuous drag for Sprint. There was a rumored deal like this some 5 or so years ago. Sprint apparently didn't want to, because LVLT was not in a good enough financial shape. Times have changed. Everyone, including VZ/T is losing share in enterprise to CTL (LVLT).


petec

  • Hero Member
  • *****
  • Posts: 1544
Re: CTL - CenturyLink
« Reply #231 on: November 03, 2018, 12:55:39 AM »
I will worry if they change the tune he sang as recently as last week. So far nothing but greener pastures for him. Wildcard could be if they ink some revenue deal with TMUS. Or something bigger with Masa down the road.

How would you envisage a revenue deal with TMUS working?

CTL simply takes over Sprint's enterprise business / customers. It has been a continuous drag for Sprint. There was a rumored deal like this some 5 or so years ago. Sprint apparently didn't want to, because LVLT was not in a good enough financial shape. Times have changed. Everyone, including VZ/T is losing share in enterprise to CTL (LVLT).

Thanks. Whatís the easiest way to track share changes? Does anyone aggregate data or are you getting that from tracking all companies?

longinvestor

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 1629
  • Never interrupt compounding unnecessarily -Munger
Re: CTL - CenturyLink
« Reply #232 on: November 05, 2018, 05:59:51 AM »
So after spending a lot of time trying to understand the downside Iíve started to think more about the ďwhat if it all goes rightĒ scenario.

1) margins rise 500-700bps off a base of 36%. Round numbers, that gets you to 9-10bn in ebitda. At those levels free cash flow after the dividend is $1-2bn and you need to pay down $1-4.5bn of debt to get to the middle of the 3-4x target leverage range. So best case scenario you can start buying back stock in about a year.

2) clearly there are legacy revenues that will continue to decline. But, data is the fastest growing thing on earth today (I heard an IBM stat that 90% of the data on earth was created in the last 2 years, and weíve barely got started). If you own the pipes the data flows down is it *really* so hard to believe you might be able to grow revenues at a couple of percent a year? And if you can do that, maybe you can grow ebitda at 5%. Not in the next couple of years, when ebitda growth will come from margins not revenues + operating leverage. But long term.

3) if you can grow ebitda at 5% or $500m a year, you can borrow $1.75bn to keep at 3.5x levered. Add FCF after the dividend and you get to a buyback of $3.5bn in round numbers. Thatís 15% of the company, annually, at the current price. In addition to a 10% dividend.

4) Would that company trade at 10x FCF? 15x? That would be a double or a triple.

Iím not saying this is a base case, but one has to frame upside as well as downside. Please shoot holes in this - I want to know why it canít happen.

I will bite. #1 and #3 are possible and thatís all that they are focused on.

#2: Telecom is brutal and total revenues of the industry remains capped. So they have to take share. Thereís just too much capacity and too much clout in the last mile. CTL has been building out their own last mile in enterprise. This was a late realization and brought to LVLT by Storey. Revenues have grown slowly and itís always offset by legacy shrinkage and price compression. Revenue growth? Nada.

In all of this, something that is glossed over is that by buying CTL, we are sitting on the two best fiber backbones in QWest and LVLT. We now wait for the industry to consolidate down to the last man standing. I will be dead before then 😢

petec

  • Hero Member
  • *****
  • Posts: 1544
Re: CTL - CenturyLink
« Reply #233 on: November 05, 2018, 08:40:28 AM »
The only problem with that is that (3) doesn't work without (2) - in the long run you can't grow ebitda without growing revenues. Storey is quite clear that in the long run they need to be an enterprise revenue growth company (e.g. comments at GS Communacopia conference recently).

Also, I'm very aware of the quality of the backbone but I never know how to think about that in value terms given that backbone capacity doesn't seem to be limited - the barrier to entry is cost of overlay in the last mile, as far as I can tell. Am I wrong, and can you elaborate on how you think about the value of the backbone?
« Last Edit: November 05, 2018, 08:42:46 AM by petec »

Valuehalla

  • Sr. Member
  • ****
  • Posts: 312
  • Who wants to earn forever
Re: CTL - CenturyLink
« Reply #234 on: November 07, 2018, 01:13:38 AM »
CenturyLink has named Neel Dev executive VP and chief financial officer.

The move's effective immediately; Dev has been interim CFO since Sunit Patel left the company in September.

He's another exec with experience at Level 3, where he spent 13 years prior to the CenturyLink acquisition.

He has previously served as CenturyLink group VP of finance.
BRK FFH MKL LVLT CTL BAC WFC BMY MRK MCD MO PM

longinvestor

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 1629
  • Never interrupt compounding unnecessarily -Munger
Re: CTL - CenturyLink
« Reply #235 on: November 07, 2018, 06:12:55 AM »
The only problem with that is that (3) doesn't work without (2) - in the long run you can't grow ebitda without growing revenues. Storey is quite clear that in the long run they need to be an enterprise revenue growth company (e.g. comments at GS Communacopia conference recently).

Also, I'm very aware of the quality of the backbone but I never know how to think about that in value terms given that backbone capacity doesn't seem to be limited - the barrier to entry is cost of overlay in the last mile, as far as I can tell. Am I wrong, and can you elaborate on how you think about the value of the backbone?
In the long run sure. My money is in this for the sole reason that these valuable assets are a part of the furniture when the industry is fully consolidated.In the meantime, Storey is doing the absolutely right thing in improving the margin profile of revenues. I am tickled to get paid a fat dividend while waiting. At 10+% itís quite satisfactory.

Valuehalla

  • Sr. Member
  • ****
  • Posts: 312
  • Who wants to earn forever
Re: CTL - CenturyLink
« Reply #236 on: November 08, 2018, 01:44:09 PM »
3Q 2018 Earnings are out:

http://ir.centurylink.com/file/Index?KeyFile=395695567

- Again positive surprise: Great Cash Flow figures; FCF comes in much higher than expected, primarily driven by lower capex but also by better margins
- Full year 2018 outlook AGAIN raised for FCF to 4,0 to 4,2 B !
- CF from Operations up to 1,787 B from 1,582 B in Q2 ( = 13 % up)
- Full year 2018 outlook confirmed for EBITDA at 9 to 9.15 B
- Capex will be 3,15 to 3,25 B in 2018, not 16 % of the revenue
- MarketCap was 22,08 B on 21.08 $ closing price today,
- Although after hour the share price dropp 6 %
- Revenue was 5,818 B in Q3 (5,902 B in Q2)
- Imporved EBITDA margins 39,3 % from 38,5 % in Q2 and 35,5 % a year ago
- Free Cash Flow: 1,103 M in Q3 (811 M in Q2); expected outlook for FCF 2018 increased to 4,0 to 4,2B (till now 3,6 to 3,8 B)
- For the dividend (2,3 B per year) that means the payout ratio will be app 56 % of FCF. So payout ratio is massively down with that FCF figures in comparison to the past.
- net debt to adj EBITDA ratio down to 4.1 (4.2 x in previous quarter), target 3 to 4 times
- Long-Term Debt & Credit Facilities down to 35,749 B down from 36,878 B at end of Q2
   (36,94 B at end of Q1 18 and 37,238 B end Q4 17)

Conference call:
- focus on profitable revenue, low margin contracts were and will be canceled
- revenue decline comes from unprofitable contracts
- good progress with synergies and integration, ahead of the expectations
- expect lower expenses
- expect further growing EBITDA & margins
- Price for life product now generates 50% of the cunsumer revenue, which simplifies the handling, reduce costs
- Capex 13 % of total revenue, reduced capex in copper plant and incraesed in fiber footprint. Longterm capex will be at 16% of revenue.
- They "remain comfortable with the dividend"!
- The focus of the management will move from integration to business transformation now
- 5G is part of CTLs network expanding strategy
- head count: app 52,500 a year ago and app 46,000 now

Transcript:
https://finance.yahoo.com/news/centurylink-inc-ctl-q3-2018-032900932.html?.tsrc=applewf
« Last Edit: November 09, 2018, 02:04:53 AM by Valuehalla »
BRK FFH MKL LVLT CTL BAC WFC BMY MRK MCD MO PM

marazul

  • Jr. Member
  • **
  • Posts: 85
Re: CTL - CenturyLink
« Reply #237 on: November 08, 2018, 01:45:46 PM »
numbers look very good, why is the stock down afterhours?

petec

  • Hero Member
  • *****
  • Posts: 1544
Re: CTL - CenturyLink
« Reply #238 on: November 08, 2018, 02:12:11 PM »
numbers look very good, why is the stock down afterhours?

Because the revenue and OCF figures arenít good. The FCF beat is on lowered capex only. Call commentary will be key.

Valuehalla

  • Sr. Member
  • ****
  • Posts: 312
  • Who wants to earn forever
Re: CTL - CenturyLink
« Reply #239 on: November 08, 2018, 03:07:15 PM »
Operating Cash Flow was up 13 % from last quarter, FCF up 36 %.

What do you guys out there think about the figures and the conferencecall ?

To me everything looks good.
« Last Edit: November 08, 2018, 03:21:16 PM by Valuehalla »
BRK FFH MKL LVLT CTL BAC WFC BMY MRK MCD MO PM