Author Topic: CTL - CenturyLink  (Read 117056 times)

Spekulatius

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Re: CTL - CenturyLink
« Reply #340 on: February 14, 2019, 11:54:42 AM »
It should be noted that CTL‘s EV actually probably increased after the dividend cut- the trades debt jumped by ~8% in price. Wealth was simply transferred from equity to bond holders.
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Valuehalla

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Re: CTL - CenturyLink
« Reply #341 on: February 14, 2019, 11:59:39 AM »
Mason Hawkins reduced his position

http://ofchq.snl.com/cache/396748719.PDF
BRK FFH MKL LVLT CTL BAC WFC BMY MRK MCD MO PM

tylerdurden

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Re: CTL - CenturyLink
« Reply #342 on: February 14, 2019, 01:12:12 PM »
Since there are no clear cut answers in the world of 'high corporate finance" :-), I guess the company just wanted to try a different path and see whether it'll stick with investors. They tried full commitment on dividend for a while and the stock didn't react so they are trying this new approach to see whether the investors would actually like it better.

Valuehalla, It seems Mason Hawkins decreased marginally but they sounded confident about CTL in their annual letter. I'd guess they sold some earlier in the quarter to pick up some other names. Also these 13f reports could be sometimes confusing. They manage some separate accounts too for their customers I believe so any customer who wants to sell independently could also show in their overall 13F reports.

In terms of competition, management says they don't see anything out of the ordinary. The assets they own should give them at least some pricing power hopefully. With the new flexibility on capex perhaps they can compete better too. There has been some consolidation in the industry so you'd expect some pricing power because of that as well but these are all assumptions of course...

dyow

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Re: CTL - CenturyLink
« Reply #343 on: February 14, 2019, 02:30:56 PM »
Not sure why people are bullish on the dividend cut.

Cutting the dividend after positively confirming the dividend is safe is a big hit to the credibility of the CEO.  The same CEO you are relying on for the integration.  The same CEO analysts/shareholders will always doubt going forward.

It also shows lack of confidence in the business prospects and future cash flows.  Remember the yield was high because of the stock price, not because the payout ratio was too high.  My opinion is that this type of company should be paying most of their income as dividends - this is not a growth stock.

You could say it is priced in at 20% FCF yield but the act of cutting the dividend tells you that 20% yield may not be 20% in a few years.

To me the dividend was the indirect thesis for the investment. maintaining the dividend meant cash flows were increasing, which was the point of the integration.  Cutting the dividend telegraphs that cash flows are not what they projected and if cash flows decrease why invest here.  Even if they de-lever it doesn't mean much if CFs are shrinking.

dyow

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Re: CTL - CenturyLink
« Reply #344 on: February 14, 2019, 02:48:44 PM »
Mason Hawkins reduced his position

http://ofchq.snl.com/cache/396748719.PDF

They have been selling everything.  Check their filings.  They only had 5% cash at year end. and their fund has been doing poorly and they are getting redemptions.  Another stock i follow CNX has also gotten crushed recently which was a big holding of theirs....now with CTL (their largest holding) going against them i am sure investors aren't happy. 

Oh and here is what they said about CTL's dividend in their annual letter recently "The dividend moved back up to a mid-teens yield with minimal chance of any cut.".......only to have CTL cut the dividend a couple weeks after. 

Wasn't southeastern very active in pushing for the CTL and Level 3 merger? How can you be so actively involved and misread the situation so badly?  These guys don't seem to be in touch with reality.  If they did push for the merger, you have to wonder how good that analysis was considering how badly they misjudged the safety of the dividend.
« Last Edit: February 14, 2019, 03:05:48 PM by dyow »

Spekulatius

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Re: CTL - CenturyLink
« Reply #345 on: February 14, 2019, 03:22:51 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.

I can understand why one would sell on the news. I am myself inclined to sell when my investment thesis is proven incorrect, almost regardless of value perception. Empirically, I found that “thesis shift” does not work well and the fact that one was wrong to begin with either means that one was wrong assessing the business or the business has changed for the worse. Either one is a reason to sell.

FWIW, some long CTL bonds were up from 82.5% to 90% today, so the bond investor like the dividend cut.
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tylerdurden

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Re: CTL - CenturyLink
« Reply #346 on: February 14, 2019, 03:47:17 PM »
Not sure why people are bullish on the dividend cut.

Cutting the dividend after positively confirming the dividend is safe is a big hit to the credibility of the CEO.  The same CEO you are relying on for the integration.  The same CEO analysts/shareholders will always doubt going forward.

It also shows lack of confidence in the business prospects and future cash flows.  Remember the yield was high because of the stock price, not because the payout ratio was too high.  My opinion is that this type of company should be paying most of their income as dividends - this is not a growth stock.

You could say it is priced in at 20% FCF yield but the act of cutting the dividend tells you that 20% yield may not be 20% in a few years.

To me the dividend was the indirect thesis for the investment. maintaining the dividend meant cash flows were increasing, which was the point of the integration.  Cutting the dividend telegraphs that cash flows are not what they projected and if cash flows decrease why invest here.  Even if they de-lever it doesn't mean much if CFs are shrinking.

I agree regarding the impact on Management’s credibility however it seems to me they feel like they needed to try a new approach since commiting to the dividend didn’t work out for the share price for more than a year now. Who knows what banker is pitching what to these guys. Or someone at the board (un)justifibly thinks the problem was the debt level and he seemed right unfortunately until now. To me it’s all about revenue stabilization. If they can do that with higher or lower dividend this should go back up. Cutting the dividend providing more flexibility for capex could potentially help but we’ll see i guess...

tylerdurden

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Re: CTL - CenturyLink
« Reply #347 on: February 14, 2019, 03:51:50 PM »
Mason Hawkins reduced his position

http://ofchq.snl.com/cache/396748719.PDF

They have been selling everything.  Check their filings.  They only had 5% cash at year end. and their fund has been doing poorly and they are getting redemptions.  Another stock i follow CNX has also gotten crushed recently which was a big holding of theirs....now with CTL (their largest holding) going against them i am sure investors aren't happy. 

Oh and here is what they said about CTL's dividend in their annual letter recently "The dividend moved back up to a mid-teens yield with minimal chance of any cut.".......only to have CTL cut the dividend a couple weeks after. 

Wasn't southeastern very active in pushing for the CTL and Level 3 merger? How can you be so actively involved and misread the situation so badly?  These guys don't seem to be in touch with reality.  If they did push for the merger, you have to wonder how good that analysis was considering how badly they misjudged the safety of the dividend.

With what’s going on with cnx and even with their ge investment or agn nothing has been working for these guys lately. How about this poison pill type of decision taken by CTL for protecting NOLs? Is that a coincidence they announce it with the div cut? Any ideas anyone?

LightWhale

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Re: CTL - CenturyLink
« Reply #348 on: February 14, 2019, 09:40:36 PM »
It also shows lack of confidence in the business prospects and future cash flows.  Remember the yield was high because of the stock price, not because the payout ratio was too high.  My opinion is that this type of company should be paying most of their income as dividends - this is not a growth stock.

There's another way to view it, that jumps right out of the numbers - the lower bound of 3.1B FCF, with a 2.3B div, leaves 800m. That easily covers interest payments. But it does not leave enough for transformation, which is front-loaded with expenses whereas value accrues later. But the transformation numbers are new info, and actually stem from fulfilment of integration synergies sooner than promised. So now they need extra 450-650m of cash to create >800m of recurring EBITDA gain. Sounds like a reasonable capital allocation plan. Considering the manner and pace that integration synergies materialised, would you give up that opp just to maintain the dividend?

And that's not to say that the results are not a mixed bag. And certainly if one subscribed to Longinvestor's view that the industry is up to a Sisyphean task, investing in CTL would not make much sense.
« Last Edit: February 14, 2019, 09:52:36 PM by LightWhale »

dyow

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Re: CTL - CenturyLink
« Reply #349 on: February 14, 2019, 10:35:17 PM »
It also shows lack of confidence in the business prospects and future cash flows.  Remember the yield was high because of the stock price, not because the payout ratio was too high.  My opinion is that this type of company should be paying most of their income as dividends - this is not a growth stock.

There's another way to view it, that jumps right out of the numbers - the lower bound of 3.1B FCF, with a 2.3B div, leaves 800m. That easily covers interest payments. But it does not leave enough for transformation, which is front-loaded with expenses whereas value accrues later. But the transformation numbers are new info, and actually stem from fulfilment of integration synergies sooner than promised. So now they need extra 450-650m of cash to create >800m of recurring EBITDA gain. Sounds like a reasonable capital allocation plan. Considering the manner and pace that integration synergies materialised, would you give up that opp just to maintain the dividend?

And that's not to say that the results are not a mixed bag. And certainly if one subscribed to Longinvestor's view that the industry is up to a Sisyphean task, investing in CTL would not make much sense.

I'm not too sure what you mean, if they needed 450-650M after the synergies were reached to create extra ebitda, whether they reached the goal early or not, doesn't that mean the dividend was always in trouble to begin with?

Either way i wouldn't buy this stock even at these levels.  It might be cheap but i think it will stay cheap.