We upgrade our recommendation on Liberty Global, Inc. (LBTYA) to Outperform, backed by the company's excellent financial results for the first quarter of 2011. Long-term potential of Liberty Global is visible now after its decision to acquire the third-largest cable operator in Germany, Kabel Baden.
Western Europe became an extremely lucrative segment for the cable operators. These markets witnessed growing demand for pay-TV services coupled with triple-play bundled services that combine video, Internet and telephony. Liberty Global also purchased the second largest German cable MSO, UnityMedia in 2010.
In our view, the enlarged company is likely to take over the market leadership position from the incumbent Kabel Deutschland. Deployment of DOCSIS 3.0 networks has enabled the company to provide considerably high-speed data transmission, which is on par with other large European cable operators.
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