Read on Twitter
I like the initiative, but struggle with the approach and methodology.
Author depicts two valuation methods for $ATUS, using "implied" Astound transaction comp data. One shows downside (EV per sub), the other huge upside (EV/EBITDA), but on a random 13x multiple.
2/ https://twitter.com/AndrewRangeley/status/1323282994157805570
Author depicts two valuation methods for $ATUS, using "implied" Astound transaction comp data. One shows downside (EV per sub), the other huge upside (EV/EBITDA), but on a random 13x multiple.
2/ https://twitter.com/AndrewRangeley/status/1323282994157805570
Intended message: Incredible attractive risk/reward. Wildly bullish!
What's source for 13x multiple? Wildly assumption to justify wildly bullish case for US cable/ $ATUS? In that case, risk is rubbish in/rubbish out.
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What's source for 13x multiple? Wildly assumption to justify wildly bullish case for US cable/ $ATUS? In that case, risk is rubbish in/rubbish out.
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FWIW: TPG acquired 2 of the 3 Astound assets - Grande Communication and RCN - at 8.25x FY15 EBITDA in FY16, if one believe source below.
https://www.nexttv.com/news/tpg-capital-puts-225b-rcn-and-grande-communications-407041
Would be an epic multiple expansion to sell at 13x 4 years later. NB: publicly listed cable peer group derated..
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https://www.nexttv.com/news/tpg-capital-puts-225b-rcn-and-grande-communications-407041
Would be an epic multiple expansion to sell at 13x 4 years later. NB: publicly listed cable peer group derated..
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At least author is honest about his limited knowledge (on the multiple matter) admitting he could be off by 3x.
"...but I have not seen the fins personally and I could be a turn or three off."
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"...but I have not seen the fins personally and I could be a turn or three off."
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Well, if he is off by 3x, transaction comp would be 10x (instead of 13x assumed), which is not far off current ATUS trading levels, but would still provide 50% upside.
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He might be well off by 4x though, ie Astound could have sold at 9x which would be still small accretion for TPG vs entry multiple, but bang in line w $ATUS multiple.
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What started out as seemingly highly asymmetric sit (-24% downside based on EV per sub vs. +116% upside based on 13x) could turn out to be pretty symmetric (-24% downside vs. 0% upside at 9x and similar upside at 9.5x).
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Conclusion: W/o evidence on Astound EBITDA multiple not much added value provided. Even if we get actual multiple there might be huge differences in drivers b/w Astound and $ATUS, inc ROIC-WACC and reinvestment opportunity/growth.
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General comment on EV/KPI metrics.
I get it, this is the IB's darling metric. Finding linear relationships b/w comps' EV and simple KPI figs (in our case EV/sub). Subs is just one part of the revenue equation. ARPU the other. And what about margin? Reinvestment need?
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I get it, this is the IB's darling metric. Finding linear relationships b/w comps' EV and simple KPI figs (in our case EV/sub). Subs is just one part of the revenue equation. ARPU the other. And what about margin? Reinvestment need?
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Free cash (as denominator) is king, not subs. Especially in a free cash producing rel low growth industry like cable (vs tech).
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Is an $ATUS sub really as valuable as an Astound sub? Probably more, which is noted in the piece, but why show EV/sub in first place then? It is a flawed metric on a stand-alone basis and in the context provided by the author pretty irrelevant/useless.
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