J.B. Hanauer Bullish on European Cable


J.B. Hanauer & Co. cable analyst David Joyce initiated coverage of three international cable firms -- Liberty Media International Inc., NTL Inc. and UnitedGlobalCom Inc. -- each with “outperform” ratings, citing strong prospects in the European cable market.

LMI, which was spun off from Liberty Media Corp. in June, stands to gain the most, according to Joyce. He set a $45-per-share 12-month price target on the stock -- a 30% premium from its current trading levels of about $34.47 each -- based largely on its mix of assets.

NTL, the U.K.-based cable operator, received an $83-per-share price target (50.9% above its current trading price) and UGC got a $10.50 12-month target (59.8% above its July 16 close).

LMI owns a 53% equity interest (and 89.8% of the vote) in Europe’s largest cable operator, UGC, as well as a 45% stake in the largest Japanese cable company (Jupiter Telecommunications Co. Ltd.), 50% of the largest Japanese programming company (Jupiter Programming Co.) and strong Latin American cable assets.

Joyce also saw upside opportunity at NTL, which, he wrote, trades at a “skepticism discount,” despite having 90% of its plant upgraded,a highly competitive mix of cable and telecommunications products and $275 million of expected free cash flow (cash flow after interest payments and capital expenditures are made) in 2004.

NTL’s competitors trade at an average of 11 times 2004 cash flow compared with the 6.6-times-cash-flow multiple for NTL.

At UGC, Joyce wrote that despite its performance, the stock is trading at a lower multiple because of the fear that Liberty may buy in the remaining 47% of UGC it doesn’t already own at a minimal premium.

Joyce wrote that he doesn’t believe this will happen, and that UGC will remain a separately traded entity so that it can use its stock as a deal currency for further acquisitions. UGC recently closed on the purchase of French cable operator Noos, and Joyce said he expects more acquisitions to come.

Based on its recently completed upgrades, Joyce expects UGC to generate about $250 million in free cash flow in 2004.