Jefferies: Liberty Global’s buybacks, upgrades and ‘string of pearls’ will set shares on upward trend

Liberty Global’s commitment to share buybacks, a ‘string of pearls’ strategy that will see local units separately listed, the upgrade and expansion of the UK fibre network and a potential merger in Belgium should see the company’s stock price rise from its current undervalued level, according to an analysis by Jefferies, which gives the international cable outfit a ‘buy’ rating.

According to Jefferies, Liberty’s free cashflow is well-placed to double from US$1.1 billion to US$2.3 billion over the next three years driven by synergies in the UK and Switzerland, where local cable operations have merged with big mobile players. Jefferies predicts that cashflow will grow even if Virgin Media experiences a loss in market share and there is slower than expected progress in Switzerland and the Netherlands, where Liberty Global operates a joint-venture with Vodafone.

Jefferies analysts say a significant “valuation gap” has arisen between Liberty’s actual share price and its true value because of “a complex equity case with a complicated group structure” and operational momentum that has “disappointed in recent times, in particular broadband customer losses” in its legacy UK, Swiss and Dutch networks.

The analysts also not that there was “prior uncertainty over the use of proceeds from the divestment to Vodafone” in Germany and central Europe, together with “together with foot-dragging over long-mulled UK footprint expansion”.

However, Jefferies says, Liberty’s commitment to buy back at least 10% of its stock annually for the next three years will see its price rise.

Jefferies is also positive on Liberty’s ‘string of pearls’ strategy to list its national operations separately as well as “the astute decision to upgrade the UK HFC network to full fibre that should ensure the product will see eye- to-eye with unfolding incumbent fibre in the coming battle” of broadband providers.

The analysts say that UK footprint expansion and a likely merger in Belgium will serve to remove “strategic uncertainty” around Liberty’s future.

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