Cable: from toxic wasteland to positive investment opportunity

The European cable industry has moved from being a “toxic wasteland” a few years ago to become a positively viewed investment opportunity, outperforming telco rivals in the wake of the economic crisis of the last year, a panel of finance experts told delegates at the Cable Congress in Brussels yesterday.

In line with the upbeat mood at this year’s Congress, delegates heard that investors had returned to cable following last year’s financial crisis. “We started off [last] year very anxious,” said John Hahn, managing director of Providence Equity Partners, owner of Germany’s Kabel Deutschland (KDG). “It was a very uneasy time, but some businesses have done well or really well. Naturally the markets take a while to catch up, but anyone who invested in either equity or debt has had a spectacular year.”

Hahn said that Providence’s decision to invest in cable had paid off, vindicating a move that at the time was viewed with scepticism. “When we invested in cable it was not flavour of the day. It was a toxic wasteland and not for the faint-of-heart. Since then, collectively people have done well but it was not obvious [that they would] at the time. It’s not yet over in terms of the progress [that we need to make] but it’s been a good investment.” Hahn said that, despite valuations now being at a lower level than previously, cable was “still viewed broadly as a good asset class”. However, equity investment opportunities in Europe were now few and far between, he said.

Of KDG’s forthcoming IPO, Hahn said that Providence Equity had been laying the groundwork for this since last year. He said the decision to go down the IPO route rather than sell the company reflected Providence’s long-term strategy. “We have proved ourselves to be patient investors,” he said. “When we got in again three to four years ago we had a long-term vision. That’s why we are doing a partial monetisation rather than full.” Questioned about the risks involved in an IPO at this time, he said that Providence needed to show a return to investors. “We are not an industrial holding company – at some time you have to return capital to the people who gave it to you,” he said.