Liberty Earnings: Trimming FVE to $28; Taking Telenet Private and Changing Jurisdiction to the U.S.

Narrow-moat Liberty Global’s LBTYA consolidated subsidiaries (Belgium, Switzerland, Ireland) reported a 1% organic increase in sales but a 6% decline in EBITDA as higher energy costs and price pressure are putting pressure on margins. VodafoneZiggo, Liberty’s Dutch joint-venture, saw the same narrative, while performance in Virgin-Media O2, the British joint venture, was more stable, with EBITDA remaining flattish in constant currency terms. Liberty intends to increase prices during the year across its portfolio to offset the higher costs, something we believe it has the ability to do, as it operates in relatively stable telecommunication markets. We are, however, trimming our fair value estimate to $28 per share from $32 after adjusting our short-term and medium-term sales and EBITDA forecasts. Shares remain undervalued, offering a more than 50% upside to our new $28 fair value estimate.

Liberty has recently taken corporate actions to reduce its corporate complexity, which we support. First, it intends to take its Belgian subsidiary Telenet private at EUR 22 per share (59% premium to the closing price on March 15) or a 5.5 times enterprise value to EBITDA multiple, which we consider reasonable. Telenet’s share price halved during 2022 due to inflationary pressures and the announcement of the entrance of a fourth mobile operator in Belgium. The takeover of Telenet should reduce public scrutiny over Liberty’s Belgian operations, which have also weighted on Liberty’s share price. Second, Liberty intends to change its jurisdiction from England to the U.S. The reasons are: 1) Liberty’s large U.S. shareholder base and its listing in the U.S. Nasdaq, and 2) more shareholder-friendly laws that should facilitate self-tender offers, spinoffs, and share buybacks. We support this decision, as Liberty is an intricate combination of subsidiaries and joint-ventures, so any simplification of the corporate structure will be positive for the share price, in our view.