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CTL - CenturyLink


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Telecom provider in the US offering Internet, TV and Voice to both consumer and residential. 13.7 million access lines in 37 states; 6.8 million broadband subscribers; 54 data centers.

 

$16.6 billion market cap; EV of $36.9 billion

Leverage of 2.8x

Trades at 5.0x 2013E EBITDA, 10.5x P/E

Company has flat to slight decline in growth.

P/BV of 1.0x (a lot of goodwill - negative TBV), Current ratio of 1.0x

Down 30% over the last year, 17% in the last 3 months.

Company cut its dividend in February 2013 and is now trading back down to the pre-cut dividend yield.

 

I'd love to hear your thoughts.

 

 

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As a Canadian I don't know the product offering well like I would Telus / Rogers /Bell, it would be interesting to get someone else's views.

 

Is the potential for a goodwill write down scaring people away?

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  • 2 years later...

CTL Century Link plans to acquire LVLT Level 3 Communication. The acquisition shall be finished in Q3 2017. LVLT shareholders gets a one time payment of 26,50 $ per share and 1,4286 shares of CTL. While LVLT never paid a dividend, CTL is a strong dividend payer; 2,16 $ per share, shareprice today app 25,55 = 8,5 % dividendrate

 

Presentation:

http://ir.centurylink.com/Cache/1001215938.PDF?Y=&O=PDF&D=&fid=1001215938&T=&iid=4057179

 

I am now invested in both companies and i endorse it as a strong income-investment (app 9 % payout by dividends) with huge upside potential: app 35 % till end of 2017.

 

I am invested in LVLT long time, but was not in CTL in the past. When the detailed news about the acquisition came out, LVLT surged and CTL tanked, till CTL had a pricelevel with a dividendrate of nearly 10%. 22 US$ to 2,16 annual dividend in first days of November 2016. This was the moment when i also started to add CTL. Over the time - till now - i added app the same amount of money in CTL, that i have invested in LVLT. I think the whole position is hedged in that way (? ::)) , for the case the acquisition will fail.

 

I hope that everything will work out and i plan for this case to stay invested in the new formed company. CTL and LVLT announced they will maintain the annual dividend. I think they are able to do so this year and in the future as well, maybe even they will pay out more...

 

Why: In the future the whole dividend amount to pay out is app. 2,4 B $ per year. (CTL payed out 1,2 B in 2015, so concerning the future company 51:49:CTL:LVLT its app 2,4B$). The combined company is strong enough to do so. LVLT (which never paid out any $ dividend in the past) will bring in 1,1 B $ FCF. The synergies are estimated app 0,9 B $ and further CTL did share buybacks per year of app. 0,8 B $ in 2013/14/15. So to my mind .... no problem to stem the 2,4 B$.

 

If it will become more and more clear that the acquisition will work out and that the dividend could be paid, i expect that the price of CTL will surge till we have a dividendrate of maybe 6 or 7 %. (compare dividendrates of T and VZ) So CTL price for Q3 / end of 2017 could be around 31 to 36 $. 38 % upside potential to a price of 26 $ now. Concerning my own buying prices of LVLT and CTL i have now an avg dividendrate of 9,5 % on my whole package..a great income-investment ;D

 

Here are two statements supporting my view that the CTL dividendrate of 8,5 % (today) will be sustainable:

 

Philip Cusick: JP Morgan Analyst

http://www.cnbc.com/2017/01/03/jpmorgan-upgrades-telecom-stock-centurylink.html

 

Mason Hawkins: Longleaf Partners / Southeastern Asset Management

http://www.insidermonkey.com/blog/billionaire-mason-hawkins-and-his-teams-thoughts-on-alphabet-centurylink-more-495765/

 

Note: During Q3 2015 and in Q1,2,3 2016 Longleaf and Southeastern reduced their holdings in LVLT.. we will see Q4 actions soon

 

Now some negative aspect: soft shrinking revenue at CTL and stagnating or slow growing revenue at LVLT. Concerning LVLT there were several announcements that they expect the revenue increasing over time.. so we will see.. If that happens LVLT and CTL will surge even more :) to my opinion. Higher interest rates could effect the company cause of the debt.

 

Further - in summary - the whole company seems cheap to me, with a marketcap of 35B $ combined. I have in my mind that just LVLT invested 90 B $ for their fiber net. Marketcap of 35B$ compared to 4B$ from FCF and synergies, partly used for dividends/buybacks seems very attractiv to me.

 

Maybe he whole company seems to be attractive to a much more bigger player, who likes to buy a worldwide top fiber-network for a discountprice.....

 

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Hi Ballinvarosig, no..I am not ValueCarl, just entered the forum a few days ago.

 

LVLT is still extrem cheap to my mind and additionally there is an upside gap of 6,43 % (Friday after close) to the acquisition-offer from CTL. (The upside gap was app 11% in the first days, after the acquisition offer came out.)

 

But I suggest to invest 50 % in LVLT and 50 % in LVLT. If the acquisition will fail, i think CTL price will rise and LVLT will tank. I have no doubt, that even CTL alone is able to pay the dividend.

 

On 8th Feb both companies will publish Q4 figures. I plan to swap a positions of LVLT into CTL before 28th Feb. Likely 28th Feb is the ex-div-day for CTL.  The lower the CTL price the better the swap.

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No Valuehalla, my zero-value post above was mostly just a joke for those of us who remember ValueCarl, a different poster who loved LVLT with all of his heart / soul.

 

I think Spek's comment above is very clear, so not sure what you were asking him....  He expressed no opinion on CTL/LVLT, but when people start making comments (which he quoted for clarity) that the "dividend is safe" that is generally when it no longer is safe.

 

I owned LVLT briefly years back for a nice gain, but haven't followed for years, I will step out of your discussion now.

 

Nothing more to say on LVLT / CTL, good luck!

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No Valuehalla, my zero-value post above was mostly just a joke for those of us who remember ValueCarl, a different poster who loved LVLT with all of his heart / soul.

 

I think Spek's comment above is very clear, so not sure what you were asking him....  He expressed no opinion on CTL/LVLT, but when people start making comments (which he quoted for clarity) that the "dividend is safe" that is generally when it no longer is safe.

 

I owned LVLT briefly years back for a nice gain, but haven't followed for years, I will step out of your discussion now.

 

 

Nothing more to say on LVLT / CTL, good luck!

 

Ben is correct, my statement was not specific to CTL/LVLT. In general, I believe that if management overemphasizes a point, especially something sensitive to many investors like the holy sacred dividend, often the opposite of what they state is about to happen.

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Hi Sepk, from the side of the management - to my mind - their remark concerning the dividend was just a marginal note, not something overemphazised. In the presentation it is one sentence.

 

But after the news of the acquisition came out, most third-party comments were done concerning the sustainability of the dividend; maybe because at this time the dividend-rate of 10% was extremly high. Today it is 8,7 %.

 

A negative comment that the dividend is not sustainable - as i remaind it -  just from Jim Cramer (CNBC), but in the newstext that i have read, not any details was mentioned why he thinks so. All other comments were positiv, that the combined company can pay the dividend now and in the long run.

 

Today after marketbell quartalfigures will come out and maybe we will know more.

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Figures are out:

 

LVLT

constant revenue, improvement realized concerning FCF and adj EBITA as expected for 2016 ..... As a longterm shareholder I am very happy with these results.

 

http://s1.q4cdn.com/840339377/files/doc_downloads/4Q16-Earnings/4Q16_External-Presentation_2017-02-08_FINAL_LVLT.pdf

CTL

shrinking revenue 4,29B in Q4 = -4,2 %, 17,47B FY in 2016 = -2,2%

But guidance for 2017 seems very positiv to me, they expect to stop the decrease of revenue. In the Q&A part of conferencecall they confirmed this positiv "U-turn" view, that they can stop the decrease. We will see...

 

http://ir.centurylink.com/Cache/1001219848.PDF?Y=&O=PDF&D=&fid=1001219848&T=&iid=4057179

 

The dividend was no subject in the conference call, not any sign that they will reduce it and step back from their note, that they plan to maintain it.

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Guest longinvestor

>$1B in FCF for the year, doubling for the past few years. They have $1.8 B cash on hand and the $9 B in NOL's. Given that this company was pretty much written off, that is something indeed. If someone stopped watching this around 2008 and looked at it now, they would be rubbing their eyes in disbelief. The stock price performance since then reflects the turnaround.

 

The sale to "someone" makes sense given that they cannot double the FCF again and revenue growth is non-existent. Wishing that someone was not CTL! They stink, look at their history and projections. Makes you wonder how and why capital is returned to shareholders! CTL desperately needs LVLT to maintain the divvy, even if it is for a few years. Imagine that! 

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Longinvestor, you are totally right with LVLT, CEO Jeff Storey has delivered !

 

LVLT: 1B FCF, 3B EBITA and just 34 B marketcap .... compare this to BRK. Very very cheap !

And the businessmodel seems very stabel or likely softly increasing. (For 1017 they expect up to 13 % increase in FCF.)

 

I wish and expect Jeff Storey (born 1960) to be the next CEO of CTL, when Glen Post (born 1952) will retire.

I am not sure if CTL is in a bad shape in the longrun with LVLT in combination...I am positiv on it.

LVLT will be the Sparta-phalanx inside CTL.

 

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I found the following figures:

 

Netdebt  LVLT  9,2 B + CTL  19,7 B = 28,9 B

 

FCF (combined) 3,1 to 4 B

 

I cannot see any connection of marketcap and debt. Based on the CTL price of yesterday the markercap of the combined company would be app 26,7 B. The lower the marketcap, the better the deal. This is why i added again CTL yesterday.

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I found the following figures:

 

Netdebt  LVLT  9,2 B + CTL  19,7 B = 28,9 B

 

FCF (combined) 3,1 to 4 B

 

I cannot see any connection of marketcap and debt. Based on the CTL price of yesterday the markercap of the combined company would be app 26,7 B. The lower the marketcap, the better the deal. This is why i added again CTL yesterday.

 

They are taking on an additional $10B for deal financing. To pay for the $26 cash part of the deal. They are conserving the cash on hand plus counting on the NOL s and Synergies to protect the dividend for a few years. If there is no cash drain post deal, they will be in a position to lower the debt ratio. Why they picked Sunit for the job. He'll be playing the same role - deleverage. So for LVLT holders nothing changes. This will go on for a while, a defensive cost game  The combined heft could have some benefits, especially in the enterprise side. But that's a long way away. They need to keep returning capital, deleveraging.  Looks like CTL holders' a$$es will be saved. By LVLT!

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  • 2 weeks later...

Mason Hawkins  (CEO Southeastern Asset Management) activity in Q4 2016 concerning LVLT:

 

Shares hold on 31.12.2016

 

Longleaf Partners Fund                            5.958.138 = + 21,16 %      (end of Q3=  4.917.632)

Southeastern Asset Management Inc        27.955.852=  -    0,81 %    (end of Q3= 28.184.131)

Longleaf Partners Smallcap Funds              5.717.590=    +/- 0 %      (end of Q3=  5.717.590)

 

The mentioned "vehicles" accumulate app. 11 % of LVLT 

 

In the comments of Longleaf the acquisition is described as positive and welcome:

 

http://longleafpartners.com/sites/default/files/categories/Commentary/4Q16-Longleaf-Partners-Commentary.pdf

 

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  • 2 weeks later...

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