Author Topic: CMCSA - Comcast Corporation  (Read 10157 times)

Munger_Disciple

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 581
Re: CMCSA - Comcast Corporation
« Reply #30 on: February 13, 2020, 11:01:16 AM »
Thanks BG2008, that makes more sense. I am glad that Comcast made money on Peloton.

I still think splitting the company into Cable and media would really shine light on Cable.


KJP

  • Hero Member
  • *****
  • Posts: 1094
Re: CMCSA - Comcast Corporation
« Reply #31 on: April 16, 2020, 07:37:14 AM »
There's a decent argument that the market is now assigning zero value to Comcast's NBC Universal and Sky segments. 

If you look just at Comcast's Cable division, assign all of Comcast's debt to it, and then compare it to Charter, you'd have two companies in the same business, both growing at roughly the same rate and with roughly similar leverage.  Here are the numbers:

Comcast/Charter
2019 Revenue:  $58 billion/$45.7 billion
2019 EBITDA:  $$23.2 billion/$16.8 billion  (includes mobile for both)
2019 Cash CapEx:  $8.3 billion/$7.2 billion (includes mobile and what Comcast refers to as Cable-related software and intangibles)
2019 Cable unlevered, pre-tax FCF:  $14.9 billion/$9.7 billion  (EBITDA - Cash CapEx)
2019 YE Debt:  $96 billion/$78 billion
Debt/EBITDA: 4.15x/4.65x
Current Market Cap:  $170 billion/$120 billion  (Comcast at $36.75/share, Charter at $501/share on an A/N as-converted basis)
Current EV:  $266 billion/$198 billion
Pre-tax unlevered FCF yield to Enterprise:  5.62%/4.86%  (Comcast Cable only FCF)

Just on the surface, Comcast's and Charter's current share prices suggest that NBC Universal and Sky aren't worth much of anything.  But to be fair, there likely are some additional factors at play:

1) NBC Universal (advertising/theme parks) is getting hit right now, and may not recover anytime soon.  But what is the real permanent loss of value here in the context of a $266 billion EV company?

2) Comcast appears to be committed to devoting capital to businesses (content, Europe) that likely are not as good as U.S. cable/broadband, while Charter keeps devoting excess capital to US broadband via buybacks.  The higher Charter's share price is, though, the lower the returns on its capital allocation strategy.

3) Charter has some finite tax attributes that lower its current cash taxes, so current Charter FCF is higher relative to Comcast's than the numbers above would suggest.

4) Charter is currently generating significantly lower revenue/customer than Comcast, which may mean that Charter has significant untapped pricing power

This is pure relative valuation, so it's possible neither Charter nor Comcast are good investments right now.  But based on the numbers above, I'm shifting some of my Charter investment to Comcast.  I'd love to hear reasons why that's a dumb move.

KJP

  • Hero Member
  • *****
  • Posts: 1094
Re: CMCSA - Comcast Corporation
« Reply #32 on: May 06, 2020, 05:59:39 PM »
I continue to like Comcast.  Rather than repeat the relative valuation against Charter, here's an overview of what Comcast's broadband division likely looks like in 2020 if you assign all corporate debt to it:

EBITDA:  $25 billion
D&A/CapEx:  $8 billion [when you include purchases of software intangibles, D&A and CapEx are roughly the same]
EBIT:  $17 billion
Interest:  $4 billion
Pre-Tax Income:  $13 billion
Tax @25%:  $3.25 billion
Net Income/FCF:  $9.75 billion

Current market cap = 4.62 billion shares x $35/share = $162 billion

Earnings/FCF yield = 9.75/162 = 6%
P/E = 16.6

That's just the broadband division.  It includes no value for NBCUniversal and Sky, which are far from worthless. 

Liberty

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 12701
  • twitter.com/libertyRPF
    • twitter.com/libertyRPF
"Most haystacks don't even have a needle." |  I'm on Twitter  | This podcast episode is a must-listen

KJP

  • Hero Member
  • *****
  • Posts: 1094
Re: CMCSA - Comcast Corporation
« Reply #34 on: May 08, 2020, 08:22:39 AM »
http://yetanothervalueblog.com/2020/05/comcast-buy-the-cable-business-get-everything-else-for-almost-free-cmcsa.html

The author makes the same point I've been banging on about, but uses the metric of EV/residential passings to illustrate it. 

To get into the weeds, his deliberately quick and high-level analysis is adequate if passings are essentially interchangeable.  He acknowledges that Comcast currently gets more from its passings than Charter, but suggests that will change over the next 1-3 years.  In his words,  "Comcast’s cable business is two to three years ahead of Charter in terms of margins, capital intensity, etc. (Said another way: Comcast has better margins, lower capital intensity, etc. than Charter; Charter will almost certainly get to Comcast’s current levels, but it will take them a year or three)."

I'm not sure he's right about about the margin convergence or what will drive it.  Here are the 2019 annual per customer (resi + business) for Comcast and Charter:

Comcast/Charter
Revenue:  $1840/$1565
OpEx: $1103/$988
EBITDA:  $737/$576
CapEx:  $219/$246  [includes only Comcast Cable CapEx, not software/intangible acquisitions assigned to Cable division; if that's included, Comcast currently has higher capital intensity/customer than Charter]
Unlevered FCF:  $518/$412

So, as things stand, there's a $100/customer FCF gap between the companies, and not much of that appears to be driven by capital intensity and OpEx doesn't appear to be the issue either.  Instead, ARPU appears to be driving things.  That may suggest Charter has latent pricing power, but I doubt that they're going to push ARPU in the current economic climate.  So, I think an EV/passing or EV/customer comparison probably undervalues Comcast relative to Charter.  This is also why my analysis in the posts above suggests you're paying less than zero for NBCUniversal and Sky, and why he says you are paying something for them.

Of course, some portion of the difference in valuation likely stems from perceived (and perhaps actual) capital misallocation by Comcast.

Munger_Disciple

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 581
Re: CMCSA - Comcast Corporation
« Reply #35 on: May 08, 2020, 11:40:04 AM »
The fact that Charter's margins are worse than Comcast's implies Charter has more untapped future pricing power than Comcast. So, Charter is cheaper than its price implies. I also expect Charter to have slightly higher growth rate in net broadband adds than Comcast which explains part of the difference.

As others pointed out, Comcast's main weakness is its media businesses: Sky & NBCU. They paid extremely high multiple (close to 20x IIRC) for Sky and Sky's results have sucked since the deal closed. NBCU is going thru' a much needed reorg due to COVID-19. On top of this they doubled down with the OTT service Peacock which will require significant capital investment over the next few years. In other words, Comcast is taking cash flow from its crown jewel (cable) and misallocating it in the inferior media space where the winners are highly uncertain. And you always have the possibility that they would do another Sky type deal in the future.

KJP

  • Hero Member
  • *****
  • Posts: 1094
Re: CMCSA - Comcast Corporation
« Reply #36 on: May 08, 2020, 12:15:54 PM »
The fact that Charter's margins are worse than Comcast's implies Charter has more untapped future pricing power than Comcast. So, Charter is cheaper than its price implies. I also expect Charter to have slightly higher growth rate in net broadband adds than Comcast which explains part of the difference.

As others pointed out, Comcast's main weakness is its media businesses: Sky & NBCU. They paid extremely high multiple (close to 20x IIRC) for Sky and Sky's results have sucked since the deal closed. NBCU is going thru' a much needed reorg due to COVID-19. On top of this they doubled down with the OTT service Peacock which will require significant capital investment over the next few years. In other words, Comcast is taking cash flow from its crown jewel (cable) and misallocating it in the inferior media space where the winners are highly uncertain. And you always have the possibility that they would do another Sky type deal in the future.

I agree with your second paragraph.  What do you expect each of Charter's and Comcast's growth rate of broadband subscribers to be over the next, say, three years and why?

Munger_Disciple

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 581
Re: CMCSA - Comcast Corporation
« Reply #37 on: May 08, 2020, 02:02:57 PM »

I agree with your second paragraph.  What do you expect each of Charter's and Comcast's growth rate of broadband subscribers to be over the next, say, three years and why?

If you look at 2019 numbers, the total HSD residential customer net add growth rate is very similar for both (5.2% for Comcast, 5.4% for Charter). Charter has begun to hit the stride in 2019 after spending the previous 2 years on consolidating the TWC/Bright House acquisitions. If you look at the residential net adds for Q1 2020, Charter has 566K (+2.23% from year end 2019) residential net adds vs. Comcast's 466K (+1.76% from 2019 year end). Of course one quarter does not mean much but I think Charter has a higher % of rural/suburban footprint so it is possible that this growth trend may persist. Tom Rutledge hinted at this as he implied their EBITDA is lower as a % of sales because they spend high $ amount in pursuit of customer growth. I excluded business HSD numbers in this because COVID make them less meaningful for 2020. I don't know what the difference in growth rate is over the next 3 years is but perhaps 1% difference in growth rate of residential HSD net adds is a reasonable assumption.

The main difference is this: Charter is a pure play cable HSD company with focus and superior capital allocation (massive buybacks) which drives the Malone's famed levered free cash flow growth metric. Tom Rutledge is the best cable operator on the planet in my opinion.  Comcast on the other hand is squandering away the cable advantage on inferior media investments.
« Last Edit: May 08, 2020, 02:09:53 PM by Munger_Disciple »

CorpRaider

  • Hero Member
  • *****
  • Posts: 2392
    • The Corpraider
Re: CMCSA - Comcast Corporation
« Reply #38 on: May 09, 2020, 04:52:42 AM »
On the other hand, Verizon isn't about to (maybe) come online with a ton of competition for Harry Potter World.
« Last Edit: May 09, 2020, 04:57:47 AM by CorpRaider »