|Shares Out. (in M):||200||P/E||0.0x||0.0x|
|Market Cap (in $M):||4,940||P/FCF||0.0x||0.0x|
|Net Debt (in $M):||2,979||EBIT||885||940|
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I believe an investment in ZIGGO NA will generate a minimum of +15-20% total return per year with the potential for a large special dividend and/or takeout going in the next 12-18 months.
Ziggo operates in one of Europe’s most attractive cable markets characterized by oligopolistic structure, high population density, network ubiquity, wealthy population and numerous growth opportunities. In addition to strong industry tailwinds, Ziggo benefits from a growing market share, increasing penetration and ARPUs, solid FCF generation, potential opportunities for expansion into wireless as well as an attractive valuation.
ZIGGO NA is the largest cable operator in the Netherlands passing ~56% of homes in the country, and providing standard TV, digital pay-TV, high-speed broadband internet and telephony services to consumers and businesses.
ZIGGO NA does not currently have a mobile telephony business at all, other than some basic reseller agreements – and is looking to invest E100mm over the next few years for the eventual introduction of this service.
Ziggo has stated it is highly unlikely they look to acquire spectrum or build out a greenfield mobile service, but would rather look to rollout a mobile virtual network operator (MVNO) model – a strategy successfully deployed by other Euro Cable operators
Ziggo’s competition in the Dutch market comes primarily from the incumbent KPN NV (KPN NA) and two resellers that utilize KPN’s infrastructure.
KPN FTTH Network (Reggefiber)
KPN is building out a FTTH network in the Netherlands – Reggefiber – thru a JV with Reggeborgh; KPN currently owns ~41% of Reggefiber.
Prior to the IPO – there was considerable speculation of LBTYA’s purchase of Ziggo – ultimately, I believe the two sides differed on price. A merger with LBTYA would make tremendous strategic/financial sense, and would ultimately be doable from a regulatory perspective, although there may be some competition concerns.
ZIGGO NA currently trades at ~8.95x ’12 EBITDA and ~8.42x’13 EBITDA – roughly inline/slight discount with its peer group (TNET BB, KD8 GR) with likely lower conservative consensus numbers, faster growth and a larger product penetration ramp. Every +0.5x EV/EBITDA of multiple expansion equals +10% to the equity as a result of leverage.
Ziggo will return approximately +5% in each of the next two years thru dividends (~55% of FCF), and will likely return near 100% of FCF (~10% FCF yield), as well as a potential special dividend or substantial buyback. Using a base case ~18% special dividend (€4.29/share) in late 2014 (re-leveraging to 3.5x EBITDA), Ziggo will return ~35-40% of its market cap to shareholders over the next 2.5 years, not including any equity appreciation or takeout potential.
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