We came across a bullish thesis on Liberty Global PLC (LBTYK) on ValueInvestorsClub by moneytr33. We like VIC as our preferred site because the ideas there are generally posted by aspiring analysts who tend to think out of the box. We find the ideas presented on the site well-researched and worth a serious read. Click here for the full article. Below we summarized the LBTYK bullish thesis. LBTYK shares were trading at $21.50 when this thesis was published.
Liberty Global PLC is an Anglo-Dutch-American multinational telecommunications company with headquarters in London, Amsterdam and Denver. Its respective legal names are Liberty Global PLC, Liberty Global B.V. and Liberty Global, Inc., with the first of these being publicly-traded. The company is one of the world’s leading converged broadband, communications and video companies, and operates in seven countries in Europe under the consumer brands Virgin Media, Telenet, UPC, the combined Sunrise UPC and VodafoneZiggo (owned through a 50/50 joint venture).
The analyst believed LBTYK was an undervalued name available at a huge discount to its true intrinsic value. A pro-forma profile of the company post-couple of important developments in 2020 shows a significant margin of safety, and point to a potential 160% upside from the current levels.
Up until 2015, LBTYK was able to successfully implement a smart strategy of leveraging the cash flow by 4-5 times, and use the high liquidity to make complimentary acquisitions or to buy back its own stock. For the preceding decade before 2015, the company enjoyed an almost five times return on its investment. Post-2015, a combination of growing competition and strict regulatory environment closed the liquidity tap, and pushed the stock against the wall. Dropping the leveraged equity play, the newly-energized LBTYK has adopted a new strategy of asset monetization, convergence of fixed-mobile verticals, and build up free-cash-flow via reduction in capital intensity.
Continued share buybacks have reduced the LBTYK’s outstanding shares by 30% over the past three years. Even at a muted level, the exercise has been rather significantly accretive to the stock’s value. Couple of deals – in Switzerland and the UK – are close to completion, after which the share buyback could gain steam, especially if the market price continues to remain depressed.
Summarized Conclusion
Considering Liberty Global’s entire market cap is covered by cash, investment, and steadily functional subsidies in Belgium and the Netherlands, the company has a decent safety net. The yet-to-conclude in Switzerland and the UK add meaningful value that is yet to reflect in the stock price. A continued share buyback program should further aid the stock value.
The analyst’s pro-forma free-cash-flow sums up to a cool $1.75 billion, giving a 14% FCF yield. And, the pro-forma stock price, post-all deal completions, gives a $55 upside target.
