Bank of America Merrill Lynch positive on Liberty Global

Analysts at Bank of America Merrill Lynch have issued a positive report on cable operator Liberty Global, raising their target price for the company’s shares from US$40 (€28) to US$42. The bank estimates that Liberty will see EBITDA of US$4.4bn in 2011.

Bank of America Merrill Lynch believes Liberty CEO Mike Fries’ estimate of 5% annual growth of 5% with flat margins is too conservative. The bank believes the company’s wireless strategy makes sense, that programming costs will remain relatively low compared with the US and that problematic territories including Hungary and Switzerland are beginning to see a turnaround.  

Merrill Lynch is also positive on European cable, which will see rising triple-play penetration, HD and DVR adoption and growth in broadband, where it has a technology advantage over telcos. It believes that Liberty is undervalued compared with Kabel Deutschland and Telenet (which Liberty partially owns). It says that Liberty is trading close to US cable valuations, whereas European counterparts trade between one and two times higher.

Merrill Lynch also argues that Liberty’s Unitymedia deal has outperformed expectations, which could lead to further mergers and acquisitions in high-growth markets including Germany and Poland, with divestitures possible in underperforming territories including Romania. 

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