Liberty Global sees drop in video customers

Liberty Global’s announcement of the sale of its operation in Switzerland (see separate story) came as the company posted mixed Q4 and full-year results, with an acceleration in video losses in the three months to December.

Liberty Global CEO, Mike Fries

Liberty Global lost 32,500 revenue-generating units in Q4, meaning its gain for the year overall was 30,000. The company lost 74,900 video customers in the quarter, pushing its RGU adds into negative numbers for the quarter by offsetting 24,800 broadband and 17,600 voice gains.

The losses came from Belgium – where Telenet lost 54,400 video subscribers in the quarter and 1547,200 over the year – and Switzerland, where 48,600 losses in Q4 took an annual video loss number to 187,600.

The company posted Q4 revenues of US$2.949 billion, up just 1.2%, with full-year revenues up 2.2% to US$11.958 billion. Operating income in Q4 was up 73.2% to US252 million, with the full-year figure up 10.3% to US$839 million.

Fries said that the completed and ongoing sale of assets in six of the company’s 12 markets represented an aggregate enterprise value of US$31 billion and would generate net cash proceeds to the company, when completed, of US$16 billion.

Regarding ongoing operations, Fries said that Liberty’s free cash flow provide would continue to improve and added that the company was forecasting a 20% reduction in capital expenditure this year.

Fries said that post-transactions, including the sale of the Swiss operation to Sunrise, Liberty would remain “Europe’s leading cable operator” serving 23 million and 5.9 mobile RGUs across six markets, with a further 10 million fixed and five million mobile RGUs coming from the Vodafone JV in the Netherlands.

On the earnings call following the results announcement, Fries reiterated his belief that Liberty’s stock is undervalued, pointing out that expected cash proceeds from Liberty’s pending disposals equated to US$20 a share which, together “fair market value” for Liberty’s public shares in Telenet meant that these two elements accounted for the company’s total market capitalisation, meaning that Virgin Media, its Dutch JV and other assets “are not reflected in our stock today at all”.

Analysts at investment bank Jefferies said that there was “little incrementally positive to say” about the company’s operating momentum but noted that it was trading at “an extravagant discount to what we would consider fair value even in full recognition of mixed operating trends”.

The bank said the low value of Liberty shares probably was due to historic factors such as the poor reception of its Latin American spin out and strategic mistakes such as pushing for a yet-to-be-realised turnaround at the Swiss operation.

Jefferies also said that Liberty had yet to provide clarity over the use of proceeds from its planned sale of assets to Vodafone.