Cable Operators

Re-Fi Gives Knology A Boost

7/14/2006 8:00 PM Eastern

Miller Tabak & Co. media analyst David Joyce maintained his $10 price target on Knology Inc. shares after the cable overbuilder refinanced about 60% of its debt.

Joyce improved his earnings loss and free cash flow estimates for Knology, which on June 30 refinanced its $173 million first-lien credit facility, a deal that will save $5.2 million annually in interest payments.

As a result of the interest expense reduction — and Knology eliminating its dividend and converting $20 million in preferred stock — Joyce revised his 2006 net-loss estimates to $1.42 per share from the previous forecast of $1.85 per share. Joyce also boosted his free cash flow estimate for the year to $8.8 million from $6.3 million.

Joyce maintained his $10 12-month price target on the stock price because it implies a 9.6 times multiple of estimated 2006 operating cash flow (and a 4% appreciation), in line with the industry average of 9.3 times.

But he added in a research note that investors might start to shift their focus to a 2007 multiple, which could lead to a higher valuation.

Applying the current multiple to Knology’s estimated 2007 OCF could result in an $11 per share price valuation, “which could be an 18-24 month target and a potential 15% appreciation, which is just at our 'buy’ definition,” Joyce wrote.

September