Professional Documents
Culture Documents
Disclaimer
The following presentation represents IONs analysis and opinions, and
is based on publicly available market information and regulatory filings
by Altice. This is not an offer to buy or sell securities of Altice, nor
should it be taken as advice on whether to purchase or sell securities of
Altice. ION may have positions, short or long, in the companies
discussed in this presentation. For further information, we encourage
readers to review Altices publicly available filings.
400
200
0
Source: Bloomberg
History is replete with the remains of once high-flying industries and overleveraged companies
3
Altice overview
- Altice is a Pay-TV/mobile operator in Europe, Israel, and most recently the
US with net debt/EBITDA of 5.7x
500
% change
400
300
Drahi sells
550mn in
IPO
Drahi sells
290mn
Creation of dual
class structure to
fund M&A while
protecting
majority control
200
100
0
Source: Bloomberg
Altice
16.0x
14.0x
14.0x
12.0x
10.1x
10.0x
8.0x
6.0x
5.9x
7.0x
6.9x
SFR ('14)
Portugal
Telecom
('14)
10.0x
4.0x
Sector 5 yr
historical
average
Source: Bloomberg;
Altice and Vivendi
filings
*offer rejected
The sectors current EV/EBITDA multiple is 6.8x, up from 5.6x 5 years ago
5
Altice
acquired
majority
ownership
8%
6%
10%
6%
5%
2012
2013
4%
2%
1%
0%
0%
2010
2011
2014
Source:
HOT financial statements
46%
48%
44%
42%
43%
40%
41%
38%
36%
Altice reported
margin for HOT
2Q15
HOT reported
margin 2Q15
Adjusted HOT
margin 2Q15
Source:
Altice 2Q15 financial statements;
HOT 2Q15 financial statement;
ION research based on Hot public
filings
600
500
400
300
200
100
0
2011
2012
2013
2014
Analysts assign rich valuations to HOT (average 8.6x 2016 EBITDA) while
incumbent Yes/Bezeq trades on 7.3x and is experiencing stronger commercial
success
Source: Bloomberg
11
- Unsecured bonds raised for the Cablevision deal were sold at over 10%
yield, reflecting doubts around the companys ability to service its debt
12%
10%
10%
8%
6%
6%
4%
2%
Day before Altice
acquisition
Current
12
Source: Bloomberg
$, bn
4
Non-content costs
Non-content costs
2
1
Source: Cablevision 2014 10k;
ION research
Content costs
Content costs
2014
2018e
Management has articulated longer term cost reduction targets to the equity market
which far exceed $450 million in savings promised to bondholders. Moody's views this
more aggressive target as a longer term, aspirational goal Moodys, September 24, 2015
13
EBITDA %
48%
32%
Cablevision
35%
US Cable average
How do you explain fully the discrepancy between HOTs reported 2Q15 43% EBITDA margin and your reported HOT
margin of 48%?
2.
Why has HOT been aggressively growing capitalized content costs while reducing expensed content costs?
3.
Has Numericable shifted content costs from the P&L to the Balance Sheet?
4.
5.
How much are content costs expected to rise at Cablevision over the next 3 years?
6.
How can Cablevision without a mobile offering effectively compete against Verizon triple play?
7.
Can you explain the difference in Cablevision cost-cutting guidance between equity holders and bond holders?
8.
Why do you think that you can generate EBITDA margins in the US that far exceed those of any other US operator,
including those with greater scale?
9.
Why did you create a dual class structure despite the Expert Corporate Governance Service advising against it?
10.
Your aggressive cost-cutting efforts in Israel resulted in a large number of customer losses due to poor service and
youve had to invest in restoring customer service levels (Altice 3Q14, 1Q15 earnings releases) . Why do you believe
that this creates long-term shareholder value?
16
Summary
History is replete with sectors whose valuations reached
disproportionate levels and then crashed. Every boom and bust cycle
has a poster boy. In this cycle, its Altice
- We believe that Altices operating track record is far less impressive
than were led to believe
- We question managements ability to retain subscribers and
whether theyve utilized aggressive accounting to inflate EBITDA
margins
- In our view, Altice has overpaid for Pay-TV acquisitions against the
rising tide of OTT alternatives and cord cutting
- On realistic multiples, we believe shares are worth ~50% below the
current price
17