Trimming Liberty's FVE to $28; Inflationary Pressures Weigh in EBITDA During 2023

Equity Analyst

Javier Correonero

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’s subsidiaries have historically been the main cable network owner in the countries they serve, providing the main alternative to incumbent-owned copper/fiber networks. Since 2019 Liberty has been divesting operations in noncore geographies like Germany, Romania, Hungary, or Czech Republic, and used these proceeds to reinvest in its core geographies or repurchase shares. Liberty was historically only a cable provider but has emphasized converged offerings in recent years, combining its cable businesses with mobile network operators (MNOs) through acquisitions or joint ventures. In 2016, Liberty merged its Dutch cable business Ziggo with Vodafone in a 50/50 joint venture, a move it repeated in 2021, creating the joint venture of Virgin Media and O2 (Telefonica) in the U.K. It fully acquired MNO Sunrise in Switzerland also to gain mobile exposure, a similar move to the one made in Belgium in 2016 through the acquisition of Base. In late 2021, Liberty again narrowed its focus with the sale of its Polish operations to Iliad for $1.7 billion. We look favorably upon these strategic decisions as converged players tend to show more resilience in winning and retaining customers.

Liberty has used a large part of both its organic cash flow and cash flow from divestments, such as the sale of its German business, to repurchase shares and make other investments, with shares outstanding declining by 35% from 2014 to 2021. We are skeptical about this strategy as Liberty has repurchased large amount of shares every year, irrespective of the share price. Liberty Ventures holds minority stakes in media, entertainment, and cloud companies valued at more than $3 billion.

Business Strategy & Outlook

We give Liberty Global a narrow moat rating stemming from efficient scale in its main markets: the U.K., Belgium, the Netherlands, and Switzerland. In each of these markets Liberty is one of two fixed-line network owners, with Liberty holding the cable network. Competitors are normally the incumbent telecom operators (copper networks evolving to fiber technology). Liberty enjoys high market share in almost every geography, with most markets showing rational competitive behavior, something we believe is supportive for efficient scale companies. In recent years Liberty has also followed a strategy of moving from being a fixed-only player to a converged fixed-mobile player, either through acquisitions (Switzerland, Belgium) or through joint-ventures with mobile operators (U.K. and the Netherlands). This expands the breadth of Liberty’s services and products. 

In general, mobile and fixed-line telecom services in developed countries are commodity products with little differentiation. As a result, it is unlikely that new entrants will be willing to absorb the massive upfront investments and regulatory requirements necessary to join a commoditized market. Developed telecom markets are mature, with little growth potential, which also keeps new entrants at the bay, as the profit pool is stable or declining. New entrants also know incumbents face high barriers to exit (network access is considered an essential service in many countries) so even if they can disrupt the market for some time, they know competitors will not likely leave. Old “national champions” usually have advantageous positions compared with alternative operators as they already have infrastructure in place and have long-standing relationships with the government.

Although both fixed-line and wireless markets present efficient scale characteristics, we believe this moat source is stronger in fixed-line networks, though these networks are increasingly interconnected. Developing underground channels for fixed-line cables is costly and complicated, as new lines may affect entire neighborhoods, traffic flows, or coincide with other underground infrastructure. As a result, the rationale for duplicating capacities is low.

One of the main features of wireless networks is that they require spectrum licenses to operate, a unique and scarce resource that governments periodically auction off, with bidders required to meet certain requirements. Mobile network operators (MNOs, which own the spectrum) can serve their mobile customers directly or rent out their networks to other competitors (Mobile Virtual Network Operators, MVNOs, which don’t own spectrum). Mobile networks rely on spectrum, towers, antennas, and other equipment to operate, but they also need a backbone of fixed-line infrastructure. If an operator does not own fixed infrastructure, it will have to rent access from another competitor. In addition, fixed infrastructure is not only used to support mobile communications but also to deliver fixed-line services to customers, such as broadband internet. 

We believe Liberty has two main advantages compared with its competitors. First, it can generally keep its fixed networks closed to wholesale access, as regulators usually focus their efforts on incumbent copper/fiber providers. Cable has historically been used for entertainment so regulators have paid less attention to these networks. Even if Liberty would be obliged to provide wholesale access in the future in any of its geographies, it could be years until the cable network would be ready for wholesale access and competition started to heat up. Second, hybrid-fiber-coaxial cable can provide similar speeds to fiber-to-the-home (FTTH) but the upgrades are much faster and cheaper than deploying fiber (Liberty has upgraded most of its networks to DOCSIS 3.1 technology in periods of less than three years, while full FTTH rollout in a country can take up to 10 years).

In the U.K. there are only two sizable fixed-line networks--BT’s network (copper and fiber), which covers the whole country (28 million households) and Virgin Media’s (Liberty) cable network, which covers approximately 15 million households mainly in urban areas. BT has been very slow in its fiber deployment, as for several years it was involved in discussions with the regulator (Ofcom) as it wanted a regulatory framework that would incentivize the firm to invest in fiber by ensuring acceptable returns on capital. Thanks to this, Virgin Media has had the best fixed network in the U.K. for years. However, Virgin has preferred not to attack BT’s slower copper customer base aggressively as this could trigger competitive responses that could result in unhealthy market dynamics, a decision we support. Since 2010 Liberty has maintained a very stable broadband market share at around 20% (or slightly above 5 million households). In 2021 Virgin Media merged its fixed business with the mobile business of Telefonica O2, becoming the second fully converged player in the U.K., after BT. We believe this was a good combination as both companies enjoyed good market shares (Virgin 20% in broadband and O2 30% in mobile) and can now offer converged services. 

In the Netherlands, cable provider Ziggo (Liberty) operates a joint venture with Vodafone known as VodafoneZiggo. The rationale for the merger was the same than in the U.K. The Netherlands has several fixed-line providers: 1) cable infrastructure owned by VodafoneZiggo (Liberty Global), with close to 90% homes passed 2) KPN’s infrastructure, 40% FTTH homes passed in 2021 with 80% FTTH coverage expected by 2025, and 3) other smaller local fiber operators, with the largest being Delta Fiber, Primevest, and Open Dutch Fiber. All the country is passed by copper, too.

VodafoneZiggo and KPN jointly have 80% share (40% each) of the Dutch broadband market. Dutch regulators have so far opted for a free-market structure where players have freedom in their decisions on where to build networks. In 2018 the Authority for Consumers & Markets (ACM) obliged KPN and VodafoneZiggo to open their fixed-line networks and provide wholesale access to other players. KPN had historically been doing this, but VodafoneZiggo’s cable network had always been closed. After the initial ruling, both companies appealed to a higher court, which overturned ACM’s decision. VodafoneZiggo immediately closed any wholesale negotiations whereas KPN continued to provide wholesale access to other players voluntarily. Overall, we believe the Dutch regulatory environment imposes fewer obligations and is less interventionist, allowing for natural competition or consolidation, something we like.

We believe VodafoneZiggo, is in a slight better position than KPN as first, it can keep its network closed and even if it would be obliged to provide wholesale access in the future, it could be years until the cable network is ready and competition starts to heat up. Second, hybrid-fiber-coaxial cable can provide similar speeds to fiber but with upgrades that are much faster and cheaper than deploying fiber (full rollout expected by 2022 compared with 80% fiber rollout for KPN expected in 2025). Last, VodafoneZiggo has a higher proportion of converged customers thanks to its TV sports rights (57% triple-play customers compared with KPN’s 30%).

Belgium is divided into three regions: Flanders (6.6 million people, 2.8 million households), Brussels (1.2 million people, 0.5 million households), and Wallonia (3.7 million people, 1.6 million households). In the Belgian broadband market Proximus has approximately 45% market share (measured in customers), followed by Telenet (Liberty) with 35%, and Orange at around 17% (after announcing the acquisition of Voo in 2021). However, this market share is not evenly spread throughout the country.

Telenet (Liberty Global) only competes in the Flanders and Brussels areas, whereas Proximus competes nationally (in all the three areas). We estimate Telenet has around 50% to 60% market share in Flanders, which implies Proximus has market share of around 30% to 40% in the region. In our opinion, Telenet has contributed to a stable competitive environment in Belgium, as Liberty Global generally pushes for rational behavior. Going forward we believe Telenet’s leadership in Flanders will be difficult to challenge due to its established position and the advantages of cable networks (all Flanders is already covered with the cable technology DOCSIS 3.1). In Brussels, the most competitive area, we estimate Proximus and Telenet compete for the leading position. 

The Belgian mobile market is relatively stable as it has three mobile network operators (Telenet, Proximus, and Orange), which is usually preferable to four. We believe the three-player structure favors rational behavior and prices have remained relatively stable for the past several years, being among the highest in Europe. The market has also been consolidating since 2017, with Telenet acquiring MNO Base in 2017 and Proximus acquiring mobile virtual network operator (MVNO) Mobile Vikings in 2021, something we believe is healthy for prices and softens pressures on the competitive environment. The 2022 Belgian spectrum auction could provide the opportunity for the entrance of a fourth operator, however, Belgium has very strict radiation limits, which we believe acts in favor of the incumbents as the fourth operator could face challenges in deploying radio equipment.

In Switzerland there are two main fixed-network owners, the incumbent Swisscom, with 53% market share by broadband connections, and UPC-Sunrise (Liberty) with around 30%. Swisscom passes all homes in the country while UPC-Sunrise passes 2.4 million out of 3.9 million, or 60%. Like in other countries, Liberty also followed a strategy of merging its fixed operations with a mobile operator (Sunrise) to become a converged player, reaching a market share of 30% in broadband and TV (previously 20%) and 20% in mobile. The Swiss telecommunications market has historically been rational, and the UPC-Sunrise consolidation will help to maintain this dynamic. Like in other countries (U.K. and the Netherlands) UPC has had a superior network to that of Swisscom for several years but has decided not to be very aggressive to maintain healthy market dynamics. Switzerland has three mobile network operators, Swisscom, Sunrise, and Salt, which usually results in more price stability than structures with four operators.

Narrow

Economic Moat

Liberty Global

Liberty Global Plc is an international television and broadband company, which engages in the provision of broadband communications services. It operates through the following geographical segments: U.K. and Ireland, Belgium, Switzerland, Central and Eastern Europe, and Central and Corporate. Its products include broadband, WiFi, connectivity products, TV platforms, and TV content. The company was founded in 1920 and is headquartered in London, the United Kingdom.

Earnings data Q4 2023

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Liberty Global Plc operates as an international converged fixed and mobile communications company, which engages in the provision of connectivity and entertainment and connectivity services. It operates through the following geographical segments: Switzerland, Belgium, U.K., Ireland, and Central and Other. Its products include broadband, WiFi, connectivity products, TV platforms, and TV content. The company was founded in 1920 and is headquartered in London, the United Kingdom.

Liberty Global's (LBTYA) first-quarter 2023 results reflect a year-over-year decline in both earnings and revenues.

Liberty Global (LBTYA) Q1 Earnings and Revenues Decline Y/Y

DENVER, Colorado--(BUSINESS WIRE)--Liberty Global plc today announced its Q1 2023 financial results. CEO Mike Fries stated, “Our Q1 performance demonstrates that the need for reliable high-quality connectivity remains strong across our footprint. This commercial momentum supports our commitment to investing in our market-leading fixed and mobile networks and driving product innovation to ensure an exceptional customer experience. While Q1 saw an anticipated step up in the impact of energy and l.

Liberty Global Reports Q1 2023 Results

Customers of Virgin Media will not get compensation for internet outages that occurred on Tuesday. The telecommunication company, owned by Liberty Global (NASDAQ:LBTYA), is signed up to Ofcom's automatic compensation scheme which pays out customers £9.33 per day for a total loss of service.

Virgin media customers won't get compensation for outage

DENVER, Colorado--(BUSINESS WIRE)--Liberty Global plc (“Liberty Global” or the “Company”) (NASDAQ: LBTYA, LBTYB and LBTYK) today announced plans to release its first quarter 2023 results on Tuesday, May 9, 2023. You are invited to join in its Investor Call, which will begin the following day at 09:00 a.m. (Eastern Time) on Wednesday, May 10, 2023. During the call, management will discuss the Company's results, and may provide other forward-looking information.

Liberty Global Schedules Investor Call for First Quarter 2023 Results

Liberty Global Plc Class C

Liberty Global (NASDAQ:LBTYA) has announced that it plans to launch a voluntary and conditional public takeover bid to take out minority shareholders in Telenet Group through its wholly-owned subsidiary, Liberty Global (NASDAQ:LBTYA) Belgium, sending Telenet's shares more than a third higher.  The broadband, video and mobile communications services company explained that it has been the controlling shareholder of Telenet since February 2007, and currently owns just over 59% of Telenet's outstanding issued share capital.

Telenet rallies as Liberty Global launches takeover bid

Shares of Liberty Global PLC LBTYA, +1.04% tacked on 0.9% in morning trading Tuesday, putting them on track for a sixth straight gain, after the broadband, video and mobile communications company announced plans to buy the rest of the shares of Belgium-based cable television services company Telenet Group Holdings N.V. TNET, +9.67% TLGHY, +3.67% that it doesn't already own.

Liberty Global stock rises toward longest win streak in 8 months after plans to buy the rest of Telenet shares it doesn't already own

LONDON--(BUSINESS WIRE)--Liberty Global plc (NASDAQ: LBTYA, LBTYB and LBTYK) has an indirect wholly-owned subsidiary, Liberty Global Belgium Holding B.V., a private limited liability company incorporated under the laws of the Netherlands (Liberty Global Belgium Holding).

Liberty Global plc's subsidiary, Liberty Global Belgium Holding B.V., intends to launch a voluntary and conditional public takeover bid for Telenet Group Holding NV

DENVER, Colorado--(BUSINESS WIRE)--Liberty Global plc (“Liberty Global”) (NASDAQ: LBTYA, LBTYB and LBTYK) announces that, through its wholly-owned subsidiary Liberty Global Belgium Holding B.V., (“Liberty Global Belgium Holding”), it intends to launch a voluntary and conditional public takeover bid for all the shares of Telenet Group Holding NV (“Telenet”) that it does not already own or that are not held by Telenet (the “Intended Offer”).

LIBERTY GLOBAL TO LAUNCH VOLUNTARY AND CONDITIONAL PUBLIC TAKEOVER BID FOR ITS SUBSIDIARY TELENET GROUP HOLDING

DENVER, Colorado--(BUSINESS WIRE)--Liberty Global plc (“Liberty Global”) (NASDAQ: LBTYA, LBTYB and LBTYK) will be presenting at the New Street Research Fiber to the Future Conference on Tuesday, March 28, 2023, at 11:15 am EDT. Liberty Global may make observations concerning its historical operating performance and outlook. The presentation will be webcast live at www.libertyglobal.com.

Liberty Global to Present at the New Street Research Fiber to the Future Conference

BT Openreach's pending wholesale price cuts to internet service providers (ISPs) are “desperate and premature” according to Mike Fries, chair of Virgin Media O2 owner Liberty Global (NASDAQ:LBTYA). Dubbed Equinox 2, BT Openreach is due to reduce its wholesale costs in April to encourage broadband providers like Sky, TalkTalk and Vodafone to move to high-speed full-fibre broadband.

BT is ‘desperate and premature' on broadband pricing, says Liberty Global chief

Liberty Global plc (NASDAQ:LBTYA ) Q4 2022 Earnings Conference Call February 23, 2023 9:30 AM ET Company Participants Mike Fries - Chief Executive Officer Charlie Bracken - Executive Vice President & Chief Financial Officer André Krause - Chief Executive Officer, Sunrise Lutz Schüler - Chief Executive Officer, Virgin Media Rick Westerman - Senior Vice President of Investor Relations Conference Call Participants Sam McHugh - BNP Exane James Ratcliffe - Evercore Maurice Patrick - Barclays Robert Grindle - Deutsche Bank Luis Sanchez-Lecaroz - Credit Suisse Polo Tang - UBS Steve Malcolm - Redburn Carl Murdock-Smith - Berenberg Operator Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Liberty Global Fourth Quarter 2022 Investor Call.

Liberty Global plc (LBTYA) Q4 2022 Earnings Call Transcript

Liberty Global's (LBTYA) fourth-quarter 2022 results reflect a year-over-year decline in revenues in Belgium, Switzerland and Ireland.

Liberty Global (LBTYA) Q4 Earnings, Revenues Decline Y/Y

DENVER, Colorado--(BUSINESS WIRE)--Liberty Global plc today announced its Q4 2022 financial results. CEO Mike Fries stated, “Our fourth quarter and full year results demonstrate the continued resilience of our business model as we delivered on all guidance metrics, despite challenging macro conditions.

Liberty Global Reports Q4 and FY 2022 Results

Liberty Global (NASDAQ:LBTYA), the owner of Virgin Media O2 and 5 % of Vodafone, is mulling a takeover of full-fibre alternative broadband provider Trooli for up to £100mln, according to recent reports. Trooli, which services fibre-to-the-premises (FTTP) high-speed broadband infrastructure across the south of England, has been seeking buyers as part of a broader trend of consolidation in the cramped altnet sector.

Liberty Global's Trooli interest latest sign of altnet shake out

Vodafone Group

Vodafone Group PLC (LSE:VOD) has another major investor on its shareholder register after Liberty Global (NASDAQ:LBTYA) snapped up close to a 5% stake. US-based Liberty, which also owns UK telecoms group Virgin Media O2 in partnership with Telefónica, bought 1.3bn Vodafone shares, worth £1.2bn and 4.9% of the FTSE 100-listed company.

Vodafone stake snatched up by Liberty Global

U.S.-listed Liberty Global disclosed a near-5% stake in British telecom group Vodafone on Monday, saying its larger rival's shares were undervalued by the market but ruling out a takeover.

Liberty Global takes 5% 'opportunistic' stake in Vodafone

DENVER, Colorado--(BUSINESS WIRE)--Liberty Global plc (“Liberty Global”) (NASDAQ: LBTYA, LBTYB and LBTYK) announced today that it has acquired 1,335 million shares in Vodafone Group PLC ("Vodafone") representing 4.92% of the outstanding share capital (excluding treasury shares). The transaction was principally funded through an attractive non-recourse financing, requiring equity funding from Liberty Global of approximately £225 million.

Liberty Global Acquires 4.92% Interest in Vodafone

DENVER, Colorado--( BUSINESS WIRE )--Liberty Global plc (“Liberty Global” or the “Company”) (NASDAQ: LBTYA, LBTYB and LBTYK) today announced plans to release its full-year 2022 results on Wednesday, February 22, 2023. You are invited to join in its Investor Call, which will begin the following day at 09:30 a.m. (Eastern Time) on Thursday, February 23, 2023. During the call, management will discuss the Company's results, and may provide other forward-looking information.

Liberty Global Schedules Investor Call for Full-Year 2022 Results

The average of price targets set by Wall Street analysts indicates a potential upside of 38% in Liberty Global PLC (LBTYA). While the effectiveness of this highly sought-after metric is questionable, the positive trend in earnings estimate revisions might translate into an upside in the stock.

Wall Street Analysts See a 38% Upside in Liberty Global PLC (LBTYA): Can the Stock Really Move This High?

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Liberty Global PLC (LBTYA) reported earnings 30 days ago. What's next for the stock?

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Liberty Global's (LBTYA) third-quarter 2022 results reflect a year-over-year decline in revenues in Belgium, Switzerland and Ireland.

Liberty Global (LBTYA) Q3 Earnings Increase Y/Y, Revenues Fall

Liberty Global plc (NASDAQ:LBTYA ) Q3 2022 Earnings Conference Call November 2, 2022 9:00 AM ET Company Participants Mike Fries - CEO Charlie Bracken - EVP and CFO Lutz Schüler - CEO, Virgin Media Ritchy Drost - André Krause - CEO, Sunrise UPC Business Conference Call Participants James Ratcliffe - Evercore ISI Sam McHugh - BNP Exane Nick Lyall - Societe Generale Georgios Ierodiaconou - Citi Carl Murdock-Smith - Berenberg Luis Sanchez-Lecaroz - Credit Suisse Jerry Dellis - Jefferies Matthew Harrigan - Benchmark James Ratzer - New Street Research Operator Good morning, ladies and gentlemen. Thank you for standing by.

Liberty Global plc (LBTYA) Q3 2022 Earnings Call Transcript

DENVER, Colorado--(BUSINESS WIRE)--Liberty Global plc today announced its Q3 2022 financial results.

Liberty Global Reports Q3 2022 Results

DENVER, Colorado--(BUSINESS WIRE)--Liberty Global plc (“Liberty Global”) (NASDAQ: LBTYA, LBTYB and LBTYK) will be presenting at the Morgan Stanley European Technology, Media & Telecom Conference on Wednesday, November 16, 2022, at 10:40 a.m.

News for Liberty Global Stock (LBTYA)