Kepler thinks Altice split between US and European assets is not a zero-sum game for investors.
Per today’s note:
« In our view, the recent restructuring measures are set to be positive for Altice USA but are unlikely to add value to the European assets. We believe a likely decline in EBITDA in France in 2018E and further cashflow drags (restructuring, spectrum, corporate costs and financial charges) could result in a temporary increase in leverage in 2018. Over time, we do not expect the company to reach the 4x net debt/EBITDA target even with asset disposals, which makes it highly vulnerable and equity volatile. On our new lower estimates for France (VAT, carrying fees and new taxes) and applicable lower multiples (forced seller, lower US share price, forex effects), we value the group at EUR7.5 per share (vs. EUR11 previously) and downgrade our rating from Hold to Reduce on the back of 16% downside. While the stub trades at a small discount to peers, this reflects weaker growth (CAGRs 2017-20E: revenues -0.6%, EBITDA -0.9%, opFCF +3.4% vs. the sector at +0.1%/1.9%/7.2%) and a much higher relative debt and cost of equity. Interest rate hikes and the strong euro could further depress sentiment. As a result, we think investors will only buy the stock when the share looks really cheap or trades at a larger discount to peers, and particularly when the turnaround becomes more visible. »
And its view on valuation:
« On our new lower estimates and applicable multiples (the result of more assets up for sale now and a lower US share price and forex effects), we value the group at EUR7.5 per share (vs. EUR11 previously) and downgrade it from Hold to Reduce. The stub trades at a small discount to peers, but this reflects weaker growth (2017-20E CAGRs of -0.6% for revenues, -0.6%, EBITDA -0.9%, opFCF +3.4% vs. the sector at +0.1%, 1.9%, and 7.2% respectively) and a much higher relative debt. Interest rate hikes and the strength of the euro could further depress sentiment. »