Author Topic: CABO - Cable One  (Read 36157 times)

rogermunibond

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Re: CABO - Cable One
« Reply #100 on: August 12, 2019, 12:19:50 PM »
dwy00 - I think there are actually hundreds but they have small footprints and market share.

Besides CABO, WOW is still public - Mediacom went private recently, SuddenLink and RCN are private.  And a lot of the smaller providers are private.

https://decisiondata.org/list-of-cable-providers/


Munger_Disciple

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Re: CABO - Cable One
« Reply #101 on: August 12, 2019, 12:22:53 PM »
dwy00 - I think there are actually hundreds but they have small footprints and market share.

Besides CABO, WOW is still public - Mediacom went private recently, SuddenLink and RCN are private.  And a lot of the smaller providers are private.

https://decisiondata.org/list-of-cable-providers/

SuddenLink is owned by Altice USA, a public company (Chairman Patrick Drahi).

dwy000

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Re: CABO - Cable One
« Reply #102 on: August 12, 2019, 12:36:19 PM »
dwy00 - I think there are actually hundreds but they have small footprints and market share.

Besides CABO, WOW is still public - Mediacom went private recently, SuddenLink and RCN are private.  And a lot of the smaller providers are private.

https://decisiondata.org/list-of-cable-providers/

I believe WOW and RCN are primarily over builders focused on urban muti-dwelling units.

Value92

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Re: CABO - Cable One
« Reply #103 on: August 12, 2019, 02:13:38 PM »
dwy00 - I think there are actually hundreds but they have small footprints and market share.

Besides CABO, WOW is still public - Mediacom went private recently, SuddenLink and RCN are private.  And a lot of the smaller providers are private.

https://decisiondata.org/list-of-cable-providers/

I believe WOW and RCN are primarily over builders focused on urban muti-dwelling units.

Medicaom is private but one can still get sec filings. Cox Communications is the other big private cable company. Atlantic Broadband was bought by Cogeco and one can get financials.

wabuffo

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Re: CABO - Cable One
« Reply #104 on: August 13, 2019, 07:59:24 AM »
I'd argue CHTR should have a higher multiple than CABO. CABO's thesis is that internet is a better business and more profitable. They've abandoned selling TV because it's breakeven at best and they suggest internet only generates more FCF than internet and TV. If you believe CABO is right, you're likely better off buying CHTR. There's nothing that prevents CHTR from replicating CABO's strategy. In that case, you're paying a lower multiple for CHTR with significantly more FCF upside as they shed the TV business. Also, cable is a scale game and CHTR is significantly larger than CABO.

I own both CHTR and CABO - and I like them both for different reasons.  But one area of opportunity for both of them is that they are ready to take the foot of the capital spending accelerator after recent upgrading of their networks.   Its interesting to compare annual capex spending as a % of revenue for the public cablecos:

Comcast:    14.0%
Charter:    20.9%
Altice USA: 12.1%
Cable One:  20.3%
MediaCom:   16.2%


If Charter ramps down capex to an industry average of, say, 15% of revenue, that's worth $2.6B in annual free cash flow improvement.  Cable One is smaller, but setting capex at 15% of revenue, that would improve free cash flow by $56.9m annually.

I think CABO is more than fully valued but likely to continue to be acquisitive using cash/debt.  CHTR is more attractive to me because they will be ramping up free cash flow in the coming years and continuing to buy back stock.  I thought Munger_Disciple put it best, CABO prefers to buy other smaller cablecos at 9x EBITDA while CHTR prefers to buy its own stock at 9x EBITDA.  Both strategies make sense.

FWIW,
wabuffo

vince

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Re: CABO - Cable One
« Reply #105 on: August 13, 2019, 08:30:25 AM »
I'd argue CHTR should have a higher multiple than CABO. CABO's thesis is that internet is a better business and more profitable. They've abandoned selling TV because it's breakeven at best and they suggest internet only generates more FCF than internet and TV. If you believe CABO is right, you're likely better off buying CHTR. There's nothing that prevents CHTR from replicating CABO's strategy. In that case, you're paying a lower multiple for CHTR with significantly more FCF upside as they shed the TV business. Also, cable is a scale game and CHTR is significantly larger than CABO.

I own both CHTR and CABO - and I like them both for different reasons.  But one area of opportunity for both of them is that they are ready to take the foot of the capital spending accelerator after recent upgrading of their networks.   Its interesting to compare annual capex spending as a % of revenue for the public cablecos:

Comcast:    14.0%
Charter:    20.9%
Altice USA: 12.1%
Cable One:  20.3%
MediaCom:   16.2%


If Charter ramps down capex to an industry average of, say, 15% of revenue, that's worth $2.6B in annual free cash flow improvement.  Cable One is smaller, but setting capex at 15% of revenue, that would improve free cash flow by $56.9m annually.

I think CABO is more than fully valued but likely to continue to be acquisitive using cash/debt.  CHTR is more attractive to me because they will be ramping up free cash flow in the coming years and continuing to buy back stock.  I thought Munger_Disciple put it best, CABO prefers to buy other smaller cablecos at 9x EBITDA while CHTR prefers to buy its own stock at 9x EBITDA.  Both strategies make sense.

FWIW,
wabuffo

Like the post, I have owned large positions in both for a few years.  I would be careful though assuming that Cabo's capex will fall into that 15% range, mgmt has made it fairly clear that their current %'s are probably run rate (oddly, I can't remember the reason even though I had it set in my mind 8-9 months ago when CFO responded to analyst questions).  However, Charter and Comcast have been stating confidently that their %'s are likely to keep falling towards 10%.  That may sound like good news and the market will most certainly like it but I believe Chtr CFO recently stated that means less internal high return projects.  Crazy but I have never really dug in to try and figure out what % of Chtr's capex is truly maintenance.  Most of the companies break their capex into 4-5 categories which would help when trying to come up with an estimate.

Value92

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Re: CABO - Cable One
« Reply #106 on: August 13, 2019, 09:16:28 AM »
I'd argue CHTR should have a higher multiple than CABO. CABO's thesis is that internet is a better business and more profitable. They've abandoned selling TV because it's breakeven at best and they suggest internet only generates more FCF than internet and TV. If you believe CABO is right, you're likely better off buying CHTR. There's nothing that prevents CHTR from replicating CABO's strategy. In that case, you're paying a lower multiple for CHTR with significantly more FCF upside as they shed the TV business. Also, cable is a scale game and CHTR is significantly larger than CABO.

I own both CHTR and CABO - and I like them both for different reasons.  But one area of opportunity for both of them is that they are ready to take the foot of the capital spending accelerator after recent upgrading of their networks.   Its interesting to compare annual capex spending as a % of revenue for the public cablecos:

Comcast:    14.0%
Charter:    20.9%
Altice USA: 12.1%
Cable One:  20.3%
MediaCom:   16.2%


If Charter ramps down capex to an industry average of, say, 15% of revenue, that's worth $2.6B in annual free cash flow improvement.  Cable One is smaller, but setting capex at 15% of revenue, that would improve free cash flow by $56.9m annually.

I think CABO is more than fully valued but likely to continue to be acquisitive using cash/debt.  CHTR is more attractive to me because they will be ramping up free cash flow in the coming years and continuing to buy back stock.  I thought Munger_Disciple put it best, CABO prefers to buy other smaller cablecos at 9x EBITDA while CHTR prefers to buy its own stock at 9x EBITDA.  Both strategies make sense.

FWIW,
wabuffo

Like the post, I have owned large positions in both for a few years.  I would be careful though assuming that Cabo's capex will fall into that 15% range, mgmt has made it fairly clear that their current %'s are probably run rate (oddly, I can't remember the reason even though I had it set in my mind 8-9 months ago when CFO responded to analyst questions).  However, Charter and Comcast have been stating confidently that their %'s are likely to keep falling towards 10%.  That may sound like good news and the market will most certainly like it but I believe Chtr CFO recently stated that means less internal high return projects.  Crazy but I have never really dug in to try and figure out what % of Chtr's capex is truly maintenance.  Most of the companies break their capex into 4-5 categories which would help when trying to come up with an estimate.

I agree with your posts in the short-term. In the mid- to long-term I think you should assume higher Capex as there will be a need to upgrade the networks for even higher speeds as data usage continues to grow. That will drive higher penetration rates but Capex will be higher.

vince

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Re: CABO - Cable One
« Reply #107 on: August 13, 2019, 12:42:40 PM »
I'd argue CHTR should have a higher multiple than CABO. CABO's thesis is that internet is a better business and more profitable. They've abandoned selling TV because it's breakeven at best and they suggest internet only generates more FCF than internet and TV. If you believe CABO is right, you're likely better off buying CHTR. There's nothing that prevents CHTR from replicating CABO's strategy. In that case, you're paying a lower multiple for CHTR with significantly more FCF upside as they shed the TV business. Also, cable is a scale game and CHTR is significantly larger than CABO.

I own both CHTR and CABO - and I like them both for different reasons.  But one area of opportunity for both of them is that they are ready to take the foot of the capital spending accelerator after recent upgrading of their networks.   Its interesting to compare annual capex spending as a % of revenue for the public cablecos:

Comcast:    14.0%
Charter:    20.9%
Altice USA: 12.1%
Cable One:  20.3%
MediaCom:   16.2%


If Charter ramps down capex to an industry average of, say, 15% of revenue, that's worth $2.6B in annual free cash flow improvement.  Cable One is smaller, but setting capex at 15% of revenue, that would improve free cash flow by $56.9m annually.

I think CABO is more than fully valued but likely to continue to be acquisitive using cash/debt.  CHTR is more attractive to me because they will be ramping up free cash flow in the coming years and continuing to buy back stock.  I thought Munger_Disciple put it best, CABO prefers to buy other smaller cablecos at 9x EBITDA while CHTR prefers to buy its own stock at 9x EBITDA.  Both strategies make sense.

FWIW,
wabuffo

Like the post, I have owned large positions in both for a few years.  I would be careful though assuming that Cabo's capex will fall into that 15% range, mgmt has made it fairly clear that their current %'s are probably run rate (oddly, I can't remember the reason even though I had it set in my mind 8-9 months ago when CFO responded to analyst questions).  However, Charter and Comcast have been stating confidently that their %'s are likely to keep falling towards 10%.  That may sound like good news and the market will most certainly like it but I believe Chtr CFO recently stated that means less internal high return projects.  Crazy but I have never really dug in to try and figure out what % of Chtr's capex is truly maintenance.  Most of the companies break their capex into 4-5 categories which would help when trying to come up with an estimate.

I agree with your posts in the short-term. In the mid- to long-term I think you should assume higher Capex as there will be a need to upgrade the networks for even higher speeds as data usage continues to grow. That will drive higher penetration rates but Capex will be higher.

I respectfully disagree.  There are multiple reasons why capex will be lower with lower video sales and higher data sales, with video boxes being one of them.  In addition their cost per premise to get to 10 gig are very very reasonable and it looks like 25 gig will probably be similar.  If you mean 8-10 years out, then I would tend to agree with you more.... but hey it's just an educated guess and it will probably be good capital anyway

wabuffo

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Re: CABO - Cable One
« Reply #108 on: August 13, 2019, 01:38:01 PM »
I respectfully disagree.  There are multiple reasons why capex will be lower with lower video sales and higher data sales, with video boxes being one of them.  In addition their cost per premise to get to 10 gig are very very reasonable and it looks like 25 gig will probably be similar.  If you mean 8-10 years out, then I would tend to agree with you more.... but hey it's just an educated guess and it will probably be good capital anyway

I agree with Vince.   There are basically three broad buckets of capex spending for the cableco's.

1) Customer Premise Equipment (think cable boxes, but also cable modems)
2) Infrastructure/Line Extensions (network cabling, line to home/business)
3) Support/Other (this is stuff like enterprise systems - eg. customer billing systems, etc).

Here is how each public cableco compares for the latest full year (2018) capex category as a % of revenue:

CAPEX CATEGORY                    COMCAST    CHARTER    ALTICE US    CABLE ONE   MEDIACOM

Customer Premise Equip.             5.3%       7.2%        3.9%         5.3%       7.3%
Infrastructure/Line Ext.            7.3%       8.3%        4.1%         5.8%       4.0%
Support/Other                       1.4%       5.5%        4.1%         9.2%       4.9%
TOTAL:                             15.0%      20.9%       12.1%        20.3%      16.2%


One can overanalyze these breakdowns, but its clear that Charter is playing catch-up in all three categories as it upgrades its network and video boxes in order to maximize consumer pricing/value.  It also is spending in things like enterprise systems to integrate the various opcos.    In CABO's case, they are clearly spending on systems to integrate their acquisitions into one customer billing system.  Over time as CABO reaches its ultimate size, that category of spending should decline significantly.

Over the longer term for cableco's as a class, category 3 should decline.  Perhaps category 2 stays the same or goes up.  But I think category 1 goes down as well as video subs decline since most of that capex is cable boxes.   Of course, the wildcard would be an aggressive entry by the major cableco's into wireless telephony - but that's an investment into a whole other business. 

wabuffo

« Last Edit: August 13, 2019, 01:43:33 PM by wabuffo »

Munger_Disciple

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Re: CABO - Cable One
« Reply #109 on: August 14, 2019, 10:06:40 AM »

I agree with Vince.   There are basically three broad buckets of capex spending for the cableco's.

1) Customer Premise Equipment (think cable boxes, but also cable modems)
2) Infrastructure/Line Extensions (network cabling, line to home/business)
3) Support/Other (this is stuff like enterprise systems - eg. customer billing systems, etc).

Here is how each public cableco compares for the latest full year (2018) capex category as a % of revenue:

CAPEX CATEGORY                    COMCAST    CHARTER    ALTICE US    CABLE ONE   MEDIACOM

Customer Premise Equip.             5.3%       7.2%        3.9%         5.3%       7.3%
Infrastructure/Line Ext.            7.3%       8.3%        4.1%         5.8%       4.0%
Support/Other                       1.4%       5.5%        4.1%         9.2%       4.9%
TOTAL:                             15.0%      20.9%       12.1%        20.3%      16.2%


One can overanalyze these breakdowns, but its clear that Charter is playing catch-up in all three categories as it upgrades its network and video boxes in order to maximize consumer pricing/value.  It also is spending in things like enterprise systems to integrate the various opcos.    In CABO's case, they are clearly spending on systems to integrate their acquisitions into one customer billing system.  Over time as CABO reaches its ultimate size, that category of spending should decline significantly.

Over the longer term for cableco's as a class, category 3 should decline.  Perhaps category 2 stays the same or goes up.  But I think category 1 goes down as well as video subs decline since most of that capex is cable boxes.   Of course, the wildcard would be an aggressive entry by the major cableco's into wireless telephony - but that's an investment into a whole other business. 

wabuffo


wabuffo,

Charter capex numbers seem off to me. Looking at Q2-2019 trending schedule, cable capex (ex. mobile) during the first half of 2019 was $3.081B and the CFO guided to $7B number for all of 2019. He also said $4B for the rest of the year would be a hard number to spend so the actual capex could come in a little less than $7B. Assuming $11B quarterly run rate for revenue ex-mobile, capex as a percentage of sales in 2019 would come to  15.9%.

I agree with general premise that capex as % of revenue should come down for Charter/CABO over time.

-MD