Company Reports

We are maintaining our $28 fair value estimate for Liberty Global after the company reported its first-quarter results. Shares remain deeply undervalued, although we do not see any nearby catalysts, given the company’s announcement two months ago of the spinoff of the Sunrise division in Switzerland has done little to the share price. Our thesis continues to be that Liberty still has a lot of work to do to reduce the complexity of its corporate holding to highlight the value of its assets and reduce its conglomerate discount.

Narrow-moat Liberty Global is taking the right steps to address its undervaluation and crystallize the value of its businesses and assets. Management announced many changes in a long strategic update, with the most important being the tax-free spinoff of Sunrise, its Switzerland telecommunications business, to shareholders. Sunrise will be listed on the SIX Swiss Exchange in the second half of 2024. Also, management will inject $1.7 billion in Sunrise to reduce its financial leverage and make it more attractive as a publicly listed entity. Once spun off, Sunrise will distribute a dividend to shareholders, which is a surprise, considering that Liberty Global has never distributed one.

Liberty Global is a holding company that fully or partially owns interests in European cable and telecommunication businesses, including in the U.K. (Virgin Media O2), Netherlands (VodafoneZiggo), Switzerland (UPC-Sunrise), and Belgium (Telenet). The firm also owns smaller businesses in Ireland and Slovakia. Liberty is known for showing rational behavior in the markets it operates, a positive in the highly competitive telecom industry.

Narrow-moat Liberty Global saw mixed trends during the third quarter. Its consolidated entities (Switzerland, Belgium, and Ireland) saw EBITDA declines of 3.4%, 2.6%, and 7.8%, respectively, as strong wage indexation is weighing on the company’s profits. VodafoneZiggo, its Dutch joint venture, saw a similar EBITDA decline at 4.1% due to continued wage and energy inflation. Virgin Media O2 was the only division growing, with EBITDA up 2.4% thanks to price increases, cost controls, and synergies. We are maintaining our $28 fair value estimate and see the shares as undervalued. We believe Liberty’s shares are penalized by its overly complicated corporate structure. It is a U.S.-listed entity with a combination of consolidated businesses and joint-ventures that are exposed to different market dynamics and currencies (EUR, GBP, CHF). Any decision that simplifies the corporate structure and highlights the value of Liberty’s assets should be positive, in our view.

Liberty Global has kept executing price increases across its different businesses in the first half of the year to offset inflationary pressures. Like other peers, price increases have held up better in the mobile market than in broadband, where Liberty has lost around 60,000 subscribers. Mobile service revenue has grown by 4% to 5% for both Virgin Media O2 and VodafoneZiggo (Liberty’s two largest subsidiaries) in the first half of the year, while fixed service revenue is showing mixed trends with price increases being offset by customer losses. Video is the market where Liberty is losing more subscribers, having lost 2% and 4% of its subscribers year over year in the Netherlands and Belgium, respectively. Liberty has also increased capital expenditures in the U.K. and the Netherlands, where it is increasing investments in fixed networks to be better positioned for the long term. We are maintaining our $28 fair value estimate but remind investors that Liberty is a complex conglomerate. Its operational cash flows are in EUR, CHF, and GBP, its reporting and trading currency is USD, it contains consolidated divisions mixed with joint ventures, and its markets might experience different dynamics.

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.

Liberty Global is a holding company that fully or partially owns interests in European cable and telecom businesses, including in the U.K. (Virgin Media O2), Netherlands (VodafoneZiggo), Switzerland (UPC-Sunrise), and Belgium (Telenet). The firm also owns smaller businesses in Ireland and Slovakia. Liberty is known for showing rational behavior in the markets it operates, a positive in the highly competitive telecom industry.

Narrow-moat Liberty Global closed the year meeting its own guidance. For the full year, sales and EBITDA of consolidated entities (Switzerland, Belgium, and Ireland) remained flattish on an organic basis, increasing 1.7% and decreasing 0.9%, respectively. The Virgin Media-O2 joint venture saw flattish revenue growth and mid-single-digit EBITDA growth, while Dutch joint venture VodafoneZiggo saw flattish sales and EBITDA growth. Liberty’s shares are trading in value territory, offering 50% upside right now. However, value might take time to materialize as Liberty is a big conglomerate with many moving parts, reducing revenue and profit visibility. Also, most of its value is not consolidated but resides in its U.K. and Dutch joint ventures, where it shares ownership with other operators. We are maintaining our $32 fair value estimate.

Liberty Global is a holding company that fully or partially owns interests in European cable and telecom businesses, including in the U.K. (Virgin Media O2), Netherlands (VodafoneZiggo), Switzerland (UPC-Sunrise), and Belgium (Telenet). The firm also owns smaller businesses in Ireland and Slovakia. Liberty is known for showing rational behavior in the markets it operates, a positive in the highly competitive telecom industry.

Liberty Global's sales increased 3.7% organically year on year in the third quarter, while EBITDA grew by 1.6% due to price increases in several markets and cost controls, which were able to offset increases in energy costs. Liberty Global has executed price increases in the U.K., Belgium, and Netherlands, so far. Liberty has exposure to stable markets with rational behavior, so its sales and EBITDA should remain less pressured than other European telecommunication firms, as the company is able to pass through any inflation to customers. Reported sales and EBITDA, in U.S. dollars, showed high-single-digit and double-digit declines, respectively, due to the appreciation of the USD against the euro. (Liberty is essentially a consolidation vehicle for a list of portfolio firms, meaning each operating subsidiary manages its own cash and resources). We maintain our $32 fair value estimate.

Liberty Global's consolidated revenue was stable in the second quarter, increasing 1% in local currencies, while EBITDA declined by 3.6% due to energy and other inflationary pressures in the cost base, mainly in Belgium (Telenet). In the reported currency (U.S. dollars), adjusted revenue and EBITDA declined by 7% and 14% respectively, due to the recent appreciation of the U.S. dollar against the euro. Liberty Global subsidiaries operate in an autonomous way and each manages its own resources, meaning currency fluctuations affect reported numbers, but are not real cash gains/losses. We maintain our $32 fair value estimate for Liberty Global and see the shares as undervalued currently.

Liberty Global's first-quarter showed sales and adjusted EBITDA stability in all markets, with both flat to slightly up in constant currencies. We maintain our USD 32 fair value estimate and believe shares offer an attractive entry point after recent share price declines. Liberty's shares have seen a progressive 15% decline during the past month, which we believe is explained by euro depreciation against the U.S. dollar and weakness in other U.S.-listed communication shares such as Verizon, Comcast or Alphabet. Despite being U.S-listed, all of Liberty’s businesses are European, having little correlation with the U.S, and we see no signs of deterioration in financial fundamentals. Liberty is just a consolidation vehicle of a list of portfolio firms, meaning each operating subsidiary manages its own cash and resources. Therefore, currency effects are caused by the translation of financial statements into U.S. dollars, but are a noncash loss.

We are relaunching coverage of Liberty Global with narrow moat (efficient scale), stable moat trend rating, and a fair value estimate of $32, which represents a 20% upside compared with its current share price.

Liberty Global is a holding company that fully or partially owns interests in leading European cable and telecom businesses, including in the U.K. (Virgin Media O2), Netherlands (VodafoneZiggo), Switzerland (UPC-Sunrise), and Belgium (Telenet). The firm also owns smaller businesses in Ireland and Slovakia. Liberty is known for showing rational behavior in the markets it operates, a positive in the highly competitive telecom industry.

Liberty Global struck many of the same themes in its fourth-quarter results and 2022 outlook, emphasizing service convergence, driving improving but still modest growth, and infrastructure investment. Management announced that it and Telefonica are holding discussions with potential partners to create a new U.K. venture to build fiber to 7 million homes by 2028, with Virgin Media O2 serving as an anchor tenant. The move would allow VMO2 and its partners to take on BT/Openreach across 80% of the country, setting up stronger wholesale competition for customers like Sky. The U.K. infrastructure and broadband markets are messy, and we suspect VMO2 is hoping to have a hand in crafting a future that solidifies its position and ensures rational competition over the long run. We don’t expect to significantly change our $31 fair value estimate.

Orange announced it has entered into exclusive negotiations to acquire 75% of cable operator Voo in Belgium, based on an enterprise value of EUR 1.8 billion. The decision comes after Voo held conversations with 27 bidders. The acquisition price implies a 9.5 times enterprise value/EBITDA multiple before synergies (no indications on synergies have yet been provided), which we see as slightly high compared with other cable peers. We maintain our fair value estimate and no moat rating for Orange.

Liberty Global’s third-quarter results were in line with our expectations across its various operating businesses and joint ventures. The firm continues to talk up plans to expand fiber in several areas, including the U.K., Ireland, and Belgium, where subsidiary Telenet intends to create a new infrastructure venture with Belgian utility company and current partner Fluvius. Major details of the agreement, including ownership positions, have yet to be announced, and the Belgian business also faces some uncertainty around the sale of cable rival Voo. Despite the array of moving parts, we like Liberty Global’s diversified set of assets. We don’t expect to significantly change our $33 fair value estimate, and we believe the stock remains modestly undervalued.

Iliad announced the acquisition of cable operator UPC Poland from Liberty Global for a PLN 7.00 billion enterprise value (EUR 1.54 billion at 22 Sept. exchange rates). It was no secret that Iliad wanted to become a converged player in the Polish market after acquiring mobile operator Play in 2020, and the offer it made for UPC in July 2021 has finally been accepted. The acquisition price implies an EV/EBITDA (after leases) multiple of 9.3 times before synergies, which in our opinion is slightly high, but the total amount of synergies Iliad can realize will be key to determining the final price paid. The company estimates it can achieve EUR 30 million in run-rate cost synergies coming from personnel and IT, and EUR 10 million-30 million in revenue synergies, mainly coming from cross-selling mobile and fixed services. Although we give higher credibility to the cost synergies, we have more doubts over revenue synergies and estimate Iliad would have to realize at least EUR 15 million in run-rate revenue synergies to justify the price paid. We maintain our EUR 182 fair value estimate and no moat rating for Iliad.

Liberty Global’s second-quarter results took a back seat to network upgrade plans announced at Virgin Media O2, its new 50%-owned venture in the U.K., an accelerated share repurchase program, and the potential sale of assets in Poland. We don’t expect to significantly change our $33 fair value estimate, and we believe the stock remains modestly undervalued.

After years of strategic moves, Liberty Global is essentially an investment holding company that consists of five major assets: a 50% stake in Virgin Media O2, the recently created cable and wireless venture in the U.K.; a 60% stake in Telenet, the largest cable company and a wireless carrier in Belgium; a 50% stake in VodafoneZiggo, the largest cable company and a wireless carrier in the Netherlands; full ownership of UPC, the largest cable company and a wireless carrier in Switzerland; and around $7 billion in cash and investments. Given this portfolio approach, future capital allocation is a key factor that will determine Liberty Global’s value.