On Jul 10, 2014, we issued an updated research report on Liberty Global plc. (LBTYA).
Except for one quarter, Liberty Global has delivered negative earnings surprises in three quarters last year, with an average beat of negative 84.96%. The company reported first-quarter 2014 financial results, wherein both its top and bottom line missed the Zacks Consensus Estimate.
We believe that the long-term business fundamentals of the company are very intriguing, primarily owing to strong demand for its digital cable-TV services, faster broadband and triple-play bundled offerings, strong cash flow and growing popularity of Horizon TV services. Based on these positives, the company posted narrower video subscriber loss in the reported quarter.
In the coming years, we expect Liberty Global’s revenues to benefit from a ‘triple play’ of video, broadband, and telephone offering, as it has signed up more number of bundled customers in Europe and Latin America.
Liberty Global also joined RDK Management LLC., a joint venture between U.S. cable giants Comcast Corp. (CMCSA) and Time Warner Cable (TWC). RDK Management sets standards and development procedures for Comcast’s Reference Design Kit (RDK) for all-IP and hybrid IP/QAM set-top boxes and gateways. Liberty Global’s inclusion in the consortium is likely to extend RDK’s reach into several European markets
In Jun 2013, Liberty Global recently completed the full acquisition of the British cable MSO, Virgin Media. The takeover places Liberty Global as one of the leading cable TV MSO (multi service operator) in the world. Additionally, the board of Liberty Global has decided to authorize a $4.5 billion share buy-back program for the next two years.
However, stiff competition, saturated European markets, high integration risks and mounting programming expenses may act as headwinds for Liberty Global while moving ahead. Moreover, Liberty Global’s plan to continue with its buyback plan coupled with debt maturity of around $12 billion by 2019 will severely hurt the company’s cash position.
Liberty Global is currently trading at significantly higher multiples with respect to several valuation metrics compared with the industry average and the S&P 500. We believe that this high level of valuation may restrict above-market gain anytime soon.
Liberty Global currently has a Zacks Rank #4 (Sell). Another stock worth considering in the Cable TV industry is Cablevision Systems Corporation (CVC) with a Zacks Rank #2 (Buy).
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