Liberty Earnings: Trimming FVE to $28; Taking Telenet Private and Changing Jurisdiction to the U.S.

Narrow-moat Liberty Global's consolidated subsidiaries (Belgium, Switzerland, Ireland) reported a 1% organic increase in sales but a 6% decline in EBITDA as higher energy costs and price pressure are putting pressure on margins. VodafoneZiggo, Liberty’s Dutch joint-venture, saw the same narrative, while performance in Virgin-Media O2, the British joint venture, was more stable, with EBITDA remaining flattish in constant currency terms. Liberty intends to increase prices during the year across its portfolio to offset the higher costs, something we believe it has the ability to do, as it operates in relatively stable telecommunication markets. We are, however, trimming our fair value estimate to $28 per share from $32 after adjusting our short-term and medium-term sales and EBITDA forecasts. Shares remain undervalued, offering a more than 50% upside to our new $28 fair value estimate.