Liberty Global: an update

Source: Alamy.com

Liberty Global’s management provided an update this week on where the company stands with the planned changes it announced at the beginning of the year as part of a drive to improve the value of the sum of its parts, which it sees as trading at a significant discount.

The key to the enterprise – certainly for this year – is the planned separation and listing of Swiss unit Sunrise, with shares of that company to be spun off to Liberty’s shareholders by the fourth quarter.

“By listing Sunrise on the Swiss exchange the goal is to create a fully distributed local valuation for the company which will represent, we believe, a meaningful premium on where our stock trades or whatever value is being attributed today. The Sunrise equity story is compelling,” said CEO Mike Fries on the Liberty Q1 earnings call yesterday, adding that the telco “stands out as the only pureplay national champion” to take on Swisscom.

Fries confirmed that Liberty plans to complete this move by Q4 this year. The parent will inject CHF1.5 billion into the operating company to boost its equity value.

On the call, Fries, in comment designed to highlight how undervalued Liberty is, said that analysts had put an equity value on the Sunrise spin-off of about US$11 per Liberty share when the latter currently trades at US$16.

Beyond Sunrise

Mike Fries (Source: Liberty Global)

Beyond Sunrise, he said (which despite the boost to value only represents “about 12% of our aggregate EBITDA”), Fries said that “the bulk of our fixed mobile converged business remains unchanged for now” with “a lot of really strong opportunities to drive value in those remaining markets”.

Building value includes infrastructure. Fries said that the company’s fibre upgrade (Virgin Media) and expansion (nexfibre) plans in the UK and Ireland (and also in Belgium through Wyre) are “picking up speed and or on track to reach roughly 20 million fibre to the home of premises by the end of 2026 and that represents just about 50% of an expanded 40 million home footprint”.

Despite the highly competitive nature of this business, Fries maintains that “large subscription-based revenue streams with extremely attractive margins” will sustain this investment. He is also boosterish about what he described as “of the most exciting ecosystem on the planet” with AI, the metaverse, cloud-based streaming and all other digital buzzword touchpoints creating “unstoppable demand for bandwidth and connectivity”.

Updating on Liberty Global’s other plans to up the market value of its assets, Fries reported that the company had received approval for the sale of production outfit All3Media to RedBird, expected to close May 15.

He said the company had seen interest to invest in its planned combined Benelux operation (which will comprise Telenet and its 50% holding in the Netherlands’ VodafoneZiggo).

Infrastructure capital ‘flowing around’

There was less to say about the planned creation of a UK NetCo comprising Virgin Media’s cable (to be upgraded to fibre) and fibre assets but excluding the nextfibre JV with Infravia for off-net fibre builds. However, it was reiterated that this “could very well attract interest from strategic and financial parties” to raise capital and “potentially accelerate our activities in that marketplace”.

Fries alluded to the “US$2 trillion” of private equity money “flowing around” of which “a big chunk” is “infrastructure capital”.

“We certainly believe that the infrastructure business is alive and well and that there is an interest certainly in these types of netcos that start life with 35-40% utilisation,” said Fries, adding that the UK network would cover 21 million homes and be the clear second network in the market that would attract wholesale customers over time.

As Fries reminded listeners at the start of the call, Liberty Global “continues to trade at a substantial discount to our sum of the parts”. That undervaluation in part reflects the complex structure that the company has put in place over the years. Untying that knot so that investors can measure the exact length of the string underneath it all is still a work in progress, but the outline is there.