Author Topic: CTL - CenturyLink  (Read 86608 times)

Valuehalla

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Re: CTL - CenturyLink
« Reply #320 on: February 13, 2019, 02:23:07 PM »
Sold out my total position right now & taking a loss, bc

1) totally lost trust in the management:

Quote CFO Neel Dev from Dec 2018 concerning the divi:
So we're comfortable with the payout ratio. So if you look at our payout ratio this year it was in the mid-50s and we did have some one-time benefits this year from lower capital spending from tax refunds. We net off making a $500 million contribution to the pension fund. So if you look at all that and normalize our payout ratios, were in the low 70s any reasonable expectations for us for the next few years you still see very good dividend coverage. So were comfortable with the payout ratio.

Now, more than half of the divi is surprisingly canceled

and

2) the Q4 figures by itself and the outlook 2019 is disappointing to me.

FCF bottomline outlook for 2019 even lowered to 3.1B, from 3.15B outlook already last year for 2018.
Revenue shrinking further, no increase in FCF or EBITDA in sight for 2019.
« Last Edit: February 13, 2019, 02:51:17 PM by Valuehalla »
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petec

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Re: CTL - CenturyLink
« Reply #321 on: February 13, 2019, 02:31:35 PM »
If it opens where it currently is in the aftermarket Ill be adding tomorrow. Faster deleverage reduces risk. FCF yield is over 20%. An additional $1bn of cost-outs have been announced. FCF guide looks good to me although I dont know how much the new cost outs contribute to it. If the new cost outs contribute to FCF growth over the next 3 years (rather than offsetting falling revenue) then the FCF yield is going to over 30%. Big if.

Annoyingly the aftermarket loss has already been halved from 15% to 7.5%. Will be interesting to see where it opens tomorrow.

peridotcapital

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Re: CTL - CenturyLink
« Reply #322 on: February 13, 2019, 02:32:25 PM »
The intrinsic value of the business is not impacted by the dividend payout ratio. Accordingly, I commend management for making the right call. If the market is unwilling to give you credit for the dividend coverage you are offering (a 15% yield proves it was not), you are only hurting investors by sticking to it. While some folks will sell on this news, the stock will probably be above today's close in the coming months. With $3 of free cash flow per share, the stock is not going to stay at $13 with a mid 30% payout ratio.

FD: Buying CTL in the after hours session.

tylerdurden

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Re: CTL - CenturyLink
« Reply #323 on: February 13, 2019, 03:38:47 PM »
This could be the right call for the company but no question erodes management's credibility after constantly telling dividend is safe etc etc. over the quarters. There is chicken and egg issue here. The stock was pressured because of the dividend cut rumors and so the yield was that high obviously so the other argument is if they had stuck to their guns, the stock price could have increased and normalized the yield. This stock was more than 24 bucks only last august so raising the surrender flag by management was perhaps premature just because the share was getting killed in the short run. Not sure why they are not buying back shares with this share price now. If they'll do extra investments to stabilize the revenues I am ok with this decision but overall it certainly left bad taste after making all those empty promises about the dividend.

Hey Valuehalla, I have been reading your comments for a long time about CTL on this board so I just wanted to share my thoughts about selling now. I know it is frustrating and i certainly have my doubts for the management's honesty and/or competence about capital allocation strategy but i think it is the worst time to sell this stock. Why don't you take a deep breath and give them a couple of more months or quarters if you can? This is highly likely an overreaction to the dividend cut news. Shouldn't impact the intrinsic value of the company at all... Anyways just don"t want you to regret this.

serendibz

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Re: CTL - CenturyLink
« Reply #324 on: February 13, 2019, 04:00:33 PM »
The intrinsic value of the business is not impacted by the dividend payout ratio. Accordingly, I commend management for making the right call. If the market is unwilling to give you credit for the dividend coverage you are offering (a 15% yield proves it was not), you are only hurting investors by sticking to it. While some folks will sell on this news, the stock will probably be above today's close in the coming months. With $3 of free cash flow per share, the stock is not going to stay at $13 with a mid 30% payout ratio.

FD: Buying CTL in the after hours session.


How do you get the $3 FCF number? Their capex is almost equal to their depreciation.

peridotcapital

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Re: CTL - CenturyLink
« Reply #325 on: February 13, 2019, 04:32:14 PM »
The intrinsic value of the business is not impacted by the dividend payout ratio. Accordingly, I commend management for making the right call. If the market is unwilling to give you credit for the dividend coverage you are offering (a 15% yield proves it was not), you are only hurting investors by sticking to it. While some folks will sell on this news, the stock will probably be above today's close in the coming months. With $3 of free cash flow per share, the stock is not going to stay at $13 with a mid 30% payout ratio.

FD: Buying CTL in the after hours session.


How do you get the $3 FCF number? Their capex is almost equal to their depreciation.

I'm just using the financial expectations management has laid out. You can also casually look at a $1 dividend and a future payout ratio in the 30's (implies ~$3 or FCF).

FCF was more like 3.50 in 2018 but capex is going up in 2019 and there were some one-off benefits in 2018. The big question longer term is whether they can grow FCF per share, as Story likes to focus on, or if the business headwinds will offset the integration/operational improvements. If $3 is real and goes higher in 2020 and beyond, the stock will head into the 20's. If $3 becomes 2.75, becomes 2.50 etc as the years pass, the stock is going to always have a crazy high FCF yield as it will be seen as a melting ice cube.

dwy000

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Re: CTL - CenturyLink
« Reply #326 on: February 13, 2019, 08:55:48 PM »
would seem the issue is more the revenues than the FCF.  There's only so much cost you can take out.  Even at $4bn of FCF per year it will take 9 years just to repay the existing debt.  At the current revenue trajectory, FCF is going to start to decline and at some point rapidly.  Their going to lose access to the debt market at any rational interest rate and the new debt will limit dividend leakage.  Unless the top line stabilizes I don't know that this is investable.

Valuehalla

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Re: CTL - CenturyLink
« Reply #327 on: February 13, 2019, 11:10:56 PM »
Hi Tylerburden, thx for your comment.

The outlook for 2019  makes it not worth to stay longer invested in CTL, all what they said in the past 30 month came not true. The outlook for 2019 consists not of an increasied FCF and/or EBITDA. Not talking about revenue.

A few times they changed the accounting for revenue. This time again. Its not possible to follow it up. Last year, after Q4 2017, i did a prognose based on all the different revenue segments of CTL & LVLT  (I published that here). It looked likely, that they can stop the decrease over some time. The revenue figures came not in with the expected development. Always the same storries about renegotiated unprofitable contracts, FX headwinds and one time effects.

Revenue and EBITDA outlook for 2019 is lower than CTL/LVLT standalone figures, when the acquisition was announced. FCF outlook for 2019 is app on same level, but much lower than their outlook given before the acquisition. Since the acquisition was made, all incoming data till now got clearly worse than predicted.

And now the total management turnaround concerning Divi and capital allocation, after being totally committed to the divi "over the next few years". A total disgrace !

If revenue will be more or less easy to stabilize, FCF and EBITDA will increase clearly even by some costcuttings. They can easily go on with the divi and they can go on deleveraging on their path as announced in the past.

There is clearly no positive development till now imo & totally not any trust is left on my side.
« Last Edit: February 14, 2019, 12:53:32 AM by Valuehalla »
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petec

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Re: CTL - CenturyLink
« Reply #328 on: February 14, 2019, 02:36:24 AM »
Cutting the dividend increases my trust in management, because it's so obviously a sensible thing to do. The market never valued the stock at less than a 10% yield, so I don't think it was trading at 15% because of fears around a dividend cut. The issue is whether it's a melting ice cube.

2017 proforma ebitda was $8.74bn. The midpoint of the 2019 guide is $9.1bn. So We have got $350m growth for $850m in cost cuts. That suggests $500m in "lost" ebitda, and at solid margins. I'm not surprised by the fact that some of the lost revenue was unprofitable - we always knew, for example, that legacy voice had high margins - but I am a little surprised by the magnitude.

On the cost side, the additional $0.8-1bn of cost outs is clearly a positive and I suspect there is more to come - they say they are "transforming" the company and this is a single digit percentage of costs. However, I don't know how much of it is factored into the 2019 guide, which is key, because if the 2019 guide is dependent on these additional cost outs then the underlying ebitda is eroding very fast. I need to see if they discussed that on the call.

On revenues, while the decline decelerated from 3q (driven by business) it's still steep. What I don't have a clear grasp on is whether something's shifted in the competitive environment. The industry has consolidated so much I assumed things would improve a little. Either they haven't or, when we get past the phase of cutting unprofitable revenue in legacy CenturyLink business segments, things will start to look better quite fast.
« Last Edit: February 14, 2019, 03:34:28 AM by petec »

Valuehalla

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Re: CTL - CenturyLink
« Reply #329 on: February 14, 2019, 04:52:47 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?



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