Author Topic: CTL - CenturyLink  (Read 118706 times)

petec

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Re: CTL - CenturyLink
« Reply #350 on: February 14, 2019, 11:07:47 PM »
@walkie - Storey was interesting on the call, saying he doesn't want to acquire more assets but could acquire capabilities to add new products using the existing assets. Make of that what you will. As for debt coming due, as discussed on the call over the next 3 years they have $3.6bn coming due and $6bn in cash allocated for debt reduction. And yes, they specifically mentioned the impact of rising rates.

@Spek - good point about the EV on the day. However if the bonds jumped it tells you there was a risk of their not being money good. Had they not been, the equity would have been worthless. I've argued for a long time that the dividend was an existential threat to the equity under some scenarios. Now, less so.

@dyow. I respectfully disagree. A 70% payout on an operationally and financially levered company with falling revenues was always uncomfortably high. They were also quite specific that cutting it did not mean they'd changed their view on future cash flows. Maybe they're lying, or maybe they simply see better uses for the cash (which isn't hard). My personal view, which I alluded to months ago on here, is that Glen Post was emotionally & reputationally attached to the dividend. Storey probably couldn't cut it on day 1 with Post still on the board. But Storey had no emotional or reputational investment in the dividend, so regardless of how often they repeated the old Post line that the dividend was safe I never expected him to stick to it unless there was a good business reason for doing so. But there wasn't: the market only briefly flirted with the idea that the dividend was sustainable, so it wasn't helping the share price, and by cutting it Storey can delever, reduce risk, and increase flexibility to add value by growing capex or buying shares if he sees an opportunity. The dividend was a huge anchor, and I'd far rather have a CEO who changes policy when he sees good reason rather than one who barges on ahead regardless. I suspect it just took the board a bit of time to come round to that view, but I always thought the writing was on the wall the day the CEO changed.

@LightWhale - interesting theory, but equally they could have funded that by a credit line. If this was the reason I suspect they'd have said so and given it a ton of positive spin, or promised the dividend cut would only last a year. No, I think they want the debt lower because they know it makes the market jittery.

@tyler, the timing of the NOL thing is odd, but the point is the merger got them close to the 50% change of control that would cost them the NOL, so a shareholder over 5% would only have to add a little for the NOLs to be lost. They have several big shareholders, so it's a real risk. The risk expires 3 years after the deal, so they've created a poison pill that expires on that date. It sounds sensible to me.

I do get why those who liked the dividend might sell now. But I hated it, and have always wanted it cut. So no thesis drift for me. The only thing really worth debating here is whether revenues can stabilise. And at this price all they have to do is stabilise.
« Last Edit: February 15, 2019, 12:14:03 AM by petec »
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petec

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Re: CTL - CenturyLink
« Reply #351 on: February 15, 2019, 12:57:28 AM »
I have a note that at a recent conference Neel Dev said: "When you go through technology transition, day one there is a step down in terms of ARPU but over time it grows as demand grows, bandwidth grows, connectivity requirement grows...we are leaning into the technology transition even though that might mean a bigger revenue write-down at day one."

This was respect to Enterprise. Anyone have context on why ARPU steps down?
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tylerdurden

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Re: CTL - CenturyLink
« Reply #352 on: February 15, 2019, 05:34:50 AM »
To me, dividend cut increases the probability that the revenues will be stabilized with additional flexibility on capex so the chances that ctl will work as an investment could be higher after the div cut. I didnít like them breaking their promise but i give them a second chance as long as they continue cutting costs...

dyow

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Re: CTL - CenturyLink
« Reply #353 on: February 15, 2019, 08:57:41 AM »
@petec i haven't been following this name long enough - so I'm probably missing a lot of things.  if there was some "politics" involved in initially keeping the dividend he should have put that aside and cut it right away and done what was best for the business. 

@tylerdurden fair enough.  My initial thesis was that if CFs were going up the dividend should be safe. that was my basic thesis, i kept it simple, whether right or wrong.  cutting the div means my thesis was wrong.  i don't want to change my thesis and drift. i am less comfortable in the name now but that is because of how i initially approached this trade.

I should clarify that i don't think a dividend cut is a bad thing for the business...i think it is a bad thing for the credibility of management and that could have a lingering impact on how the market values the stock going forward.  I've never seen a situation when a stock does well after a dividend cut even if it is the right thing to do.  Yeah it could be different this time..who knows.  I actually own some 2021 options so i would like the stock to go up - i guess we will learn how the market reacts to it.

Anyways the market got it right here, and anticipated the dividend cut pretty efficiently.
« Last Edit: February 15, 2019, 09:12:26 AM by dyow »

petec

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Re: CTL - CenturyLink
« Reply #354 on: February 15, 2019, 09:26:05 AM »
@petec i haven't been following this name long enough - so I'm probably missing a lot of things.  if there was some "politics" involved in initially keeping the dividend he should have put that aside and cut it right away and done what was best for the business. 

Totally agree, but it may not have been possible - it's not likely a decision he can make on his own and the board may have taken time to come around. Things like not wanting to discredit the old CEO, who they've worked with for a while, can be a factor in decisions like this, rightly or wrongly. So I suspect he bided his time and brought them round to the idea when the stock was low and it was clear the market didn't value the divi. But who knows.
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walkie518

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Re: CTL - CenturyLink
« Reply #355 on: February 15, 2019, 02:25:47 PM »
interesting market action today

guess this was likely an opportunity for new bulls to enter or old bulls to double up?

there could be a 2 day lag on the 13D/Gs? 

tylerdurden

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Re: CTL - CenturyLink
« Reply #356 on: February 15, 2019, 03:02:21 PM »
@ dyow - I was really confident that they were going to keep the div untouched bcs as mentioned, best time to cut the dividend, if they were ever going to do it, was right after the merger probably. CEO actually felt the need to answer that timing question during the call as well although it was kind of a BS answer. My speculation is that they could have kept the dividend but didnít really see any benefits regarding share price so were compelled to change course. I mean if the share price was above 20 I bet the dividend was not going to be cut. At least not this year. Anyways who cares at this point. I dont really see this move driven by the business performance for now. They could have easily waited another year and picked some extra cost cut benefits before 2020. Seems like they are not increasing capex significantly after div cut either.

Counterintuitively, dividend cut actually could enable new investors to come in. There should be some at least who were at the sidelines bcs there was this constant dividend cut rumors pressuring the stock. So now no pressure at all on that which means one less thing to worry about for some perhaps...

sarganaga

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Re: CTL - CenturyLink
« Reply #357 on: February 16, 2019, 02:45:07 PM »
@ dyow - I was really confident that they were going to keep the div untouched bcs as mentioned, best time to cut the dividend, if they were ever going to do it, was right after the merger probably. CEO actually felt the need to answer that timing question during the call as well although it was kind of a BS answer. My speculation is that they could have kept the dividend but didn’t really see any benefits regarding share price so were compelled to change course. I mean if the share price was above 20 I bet the dividend was not going to be cut. At least not this year. Anyways who cares at this point. I dont really see this move driven by the business performance for now. They could have easily waited another year and picked some extra cost cut benefits before 2020. Seems like they are not increasing capex significantly after div cut either.

Counterintuitively, dividend cut actually could enable new investors to come in. There should be some at least who were at the sidelines bcs there was this constant dividend cut rumors pressuring the stock. So now no pressure at all on that which means one less thing to worry about for some perha

This was me. Bought a 2% position at Friday's open.

kab60

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Re: CTL - CenturyLink
« Reply #358 on: February 16, 2019, 10:03:40 PM »
Seems like they'll shop their consumer biz?

"Although there are a lot of things we can do to manage the consumer business for cash, we're always open to evaluating other ways to maximize shareholder return from these assets"

No idea who'd buy it or for how much, but if they can shed their declining legacy ops and get enterprise growing the case would probably be looked at differently, no? Any idea how integrated these things are - I figure it wouldn't be easy?

petec

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Re: CTL - CenturyLink
« Reply #359 on: February 17, 2019, 12:27:13 AM »
@sarganaga - mind sharing your thesis?

@kab60 - yes I noticed that. Not sure they are looking but clearly open to an offer. Impact depends on cash price vs how much ebitda consumer generates, which we don't know. I doubt they are very integrated with enterprise though - very different businesses and go-to-market, plus one of the major cost/service issues is that CTL is a rollup that *hasn't* been properly integrated.
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