Author Topic: CTL - CenturyLink  (Read 107027 times)

Valuehalla

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Re: CTL - CenturyLink
« Reply #250 on: November 10, 2018, 03:45:03 AM »
From the transcript of the conference call:

"As I mentioned earlier, our initiatives around improving our capital planning and deployment processes have resulted in lighter capital expenditures. With that in mind, we now expect full year 2018 capital expenditures of $3.15 billion to $3.25 billion, which is lower than the original outlook of 16% of total revenues. Primarily driven by lower capital spending, we are updating our full year 2018 outlook for free cash flow to $4 billion to $4.2 billion from $3.6 billion to $3.8 billion.

I'd also like to point out that based on our free cash flow outlook, our dividend payout ratio as a percent of free cash flow is expected to be in the mid-50s this year. Keep in mind, in 2018 we had approximately $300 million of aggregate one-time cash flow benefit from the tax refunds, net of higher pension contribution we made this year and the bonuses paid to Level 3 employees in 2017 versus 2018. Excluding the benefit that I mentioned and if our capital expenditures were around 16% of total revenue, our payout ratio would have been in the low 70s.

We are pleased with the improvement in our payout ratio compared to last year and remain comfortable with the dividend. I'll summarize by emphasizing Jeff's earlier comments. Having just passed the one-year mark, we feel good about our synergy achievement, margin expansion and focus on profitable growth."


When they announced the acquisition in 2016 they said, for the first 4 years they will have NOLs that reduce the tax for 650 to 675 M per year.

 
« Last Edit: November 10, 2018, 04:10:43 AM by Valuehalla »
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Valuehalla

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Re: CTL - CenturyLink
« Reply #251 on: November 10, 2018, 03:57:40 AM »
CTL development in 2018:

                                        Q1                               Q2                                  Q3

Revenue                           5,945 B                         5,902 B                          5,818 B
 
EBITDA                            2,074 B                          2,111 B                          2,228 B

adj. EBITDA                      2,181 B                         2,271 B                          2,287 B                         

EBITDA Margin                  34,9 %                           38,5 %                          39,3 %

Lomg Term Dept                36,94 B                          36,78 B                          35,749 B

NetDept to adj EBITDA          x 4.3                             x 4.2                            x 4.1

Operat. CF                        1,667 B                           1,58 B                            1,787 B

FCF                                    852 M                            811 M                             1,103 B

EPS                                     0,11                              0,27                               0,25

Markt Cap
(at day figures came out)      19,464 B                      20,02 B                            22,08 B

Market Cap today: 20,43 B
BRK FFH MKL LVLT CTL BAC WFC BMY MRK MCD MO PM

petec

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Re: CTL - CenturyLink
« Reply #252 on: November 10, 2018, 04:11:41 AM »
Thanks Valuehalla. Good summary. (Although if Iím being cheeky Iíd rather net debt than long term debt!).

What do you draw from these figures? How do you feel about long term (3y+) ebitda growth prospects? And do you agree with my assumption that sustainable free cash flow is currently running at $3.2bn?

Valuehalla

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Re: CTL - CenturyLink
« Reply #253 on: November 10, 2018, 04:26:14 AM »
I feel positive with the figures in 2018.

But i am disaponted about revenue. In 2017 I made a calculation, based on all small revenue segments and i came to the result that revenue per quarter shall come in above 6B in 2018. That came not true.

Since Storey is CEO they do not announce increasing revenue anymore, just growing EBITDA and FCF, which came true over the 3 quarters in 2018. In case of LVLT they did the same agenda and in the end they increased even slightly the revenue. But nobody knows, if it will happen again in same way.

If the FCF is above 3,1 B in 2019 the company is still cheap. It remains the negative that it can be a value trapp. Revenue can shrink more and more over time. Thats a risk.

The FCF above 4 B for 2018  clearly looks like a one time effect.

But i am not sure about the meaning of the quote in the call, thats why i published it.
It could also mean that there are one time negative effects (pension fund and bonus) beside the positive effect tax refund ? And the one time positive effect is in total net just 300 B ?  (that would be great) On the other hand, that would not go along with mid 70s for payout ratio...

I am not english native speaker, how do you interprete the quote?
« Last Edit: November 10, 2018, 04:47:33 AM by Valuehalla »
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petec

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Re: CTL - CenturyLink
« Reply #254 on: November 10, 2018, 04:48:29 AM »
I read it very clearly as two effects, $300m for tax/other and another timing effect as copper capex falls before fibre capex ramps. Ex those two effects div/fcf is low 70s, or 3.2bn.

My issue is that I donít know enough about the industry as a whole - who theyíre competing against, why customers choose different providers, and therefore who might win. Iíve always known I didnít know enough about that but as headline revenue trends worsen I worry more.

3.2bn is 16% yield which is cheap but not that cheap if this cant grow.

longinvestor

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Re: CTL - CenturyLink
« Reply #255 on: November 10, 2018, 06:05:51 AM »
This is an investment case of trust in management. Make that Storey. But they have great assets but overbuilt (35B today) with the attendant debt load.. This is why Buffett never touches anything like this.

petec

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Re: CTL - CenturyLink
« Reply #256 on: November 10, 2018, 07:15:45 AM »
If I was Buffett Iíd be looking at buying this outright, refinancing the debt stack 100bps cheaper, and riding the free cash wave ;)

longinvestor

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Re: CTL - CenturyLink
« Reply #257 on: November 10, 2018, 07:27:26 AM »
If I was Buffett Iíd be looking at buying this outright, refinancing the debt stack 100bps cheaper, and riding the free cash wave ;)
That speculation has been alive for 20 years. I wish itíd happen. Todd / Ted?

petec

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Re: CTL - CenturyLink
« Reply #258 on: November 10, 2018, 07:33:35 AM »
Wonít happen but nice to dream!

Cigarbutt

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Re: CTL - CenturyLink
« Reply #259 on: November 10, 2018, 08:49:12 AM »
Long term vs short term opportunity question here.

Holding Fairfax in the past, the fact that they held LVLT securities for long periods always made me feel uneasy.

Looking at past comments made by longinvestor, it seems that concerns are shared about long term performance of these heavily indebted entities in cyclical capacity businesses. Even if Mr. Buffett had a close connection with Mr. Walter Scott and even if the 2002 environment was compelling for the LVLT distressed bonds, he "only" committed 100M and sold (with something like a 100% profit) after holding the convertible bonds for about only a year.

-A potential question for those holding CTL about the pension plan underfunding:

How does one discount for this and do you take into account different cash flow scenarios given that the thesis seems to rest a lot on the "safety" of the dividend?

In 2011, CTL benefitted from legislative "relief", basically "adjusting" discounting analysis and allowing smoothing of cash flow requirments to deal with underfunding. Then PBO=13,60B, PA=11,81 and underfunding=1,78B. The relief measures helped but in no way changed the amounts that ultimately need to be paid. At year end 2017, PBO=13,12B, PA=11,06B and underfunding=2,06B. In 2017, the funding ratio made it to 86,0% (vs 81,1% the year before). Not often discussed in investing circles but, from an actuarial and statistical perspective, the part of the curve around 80 to 85% sits very close to an area where non-linear events can occur. During 2018, CTL has contributed 100M + 400M to the pension plan but it seems that the second contribution corresponds pretty much to a mirror image of a non-recurrent tax inflow occurring in Q3.

So, even under a very favorabe environment and in the context of non-recurrent events, CTL seems to be pretty much where it was in 2011.

These days I read "Trade like Warren Buffett" by James Altucher and find it refreshing since we don't usually think of Mr. Buffett as a "trader" even though he may be.