Tele Columbus – If you build it, they will come.
All,
Please find our slightly updated analysis here.
Tele Columbus (TC) has completed its restructuring and can now concentrate on building its fibre network and protecting its CATV business. There is a distance to travel, but the company has made a decent start over the last two quarters. TC's expectation that demand for higher bandwidth will continue is compelling, and if they provide capacity, they will find an audience, but the network build-out and the pace of subscriber growth are not yet clear. We are not ready to change our view on the name yet, but if the rollout of fibre and internet uptake by customers continues over the next two quarters, we will review our stance.
Investment Considerations:
- TC has secured €300m in equity and the rescheduling of its debt, but it is at the beginning of a €2bn, 10-year plan to transform itself into a Fibre business.
- The bonds currently yield 20%, a decent equity-style return, but not yet compelling.
- We need to see success in upgrading homes and adding fibre customers.
- CATV ARPUs are under pressure as individual subscribers replace bulk contracts contracts. Keeping the TV business will be important in selling fast internet as Fibre is rolled out.
- We have only modelled a modest contribution from wholesaling of capacity, and that may need increasing
- The first couple of quarters have shown progress, but Tele Columbus is at the beginning of a long road. We do not see an immediate catalyst for significant tightening and expect quarterly volatility.
24Q1 results were in line with our expectations, but it is early days:
- 24Q1 revenue and adjusted EBITDA were in line with our modelling. The cap markets day was last week, and management gave a steer for the first quarter figures, so there were never likely to be any shocks in this release.
- Working Capital inflows were well ahead of our expectations, boosted by an unexpected (to us) EUR27m inflow from payables. The working capital flows will smooth as construction continues.
- Capex was lower than we expected (at EUR46m vs EUR68m forecast), but we believe this was down to the timing of the restructuring.
- Finally, the company received €180n of the €300m shareholder contribution in the first quarter.
The €300m loan from Morgan Stanley will fund the upgrade:
- Tele Columbus had already received €73m in shareholder loans before completing the restructuring in Q1. As a result, the initial net cash inflow in March was lower than anticipated in our model. The loan is the same; the difference is in timing.
- The €300m loan has a (PIK) interest rate of 17%. The intention is to convert it to equity sometime before its maturity in January 2030.
- Tele Columbus had drawn €73m in loans down from MS by March 2024. The €180m first tranche of the injection repaid these loans leaving €107m available to Tele Columbus. The remaining €120m will be paid out as required by March 2024.
Aengus
T: +44 203 744 7055