VMED Virgin Media Inc. (MM)

We reiterate our long-term Neutral recommendation on Liberty Global Inc. (LBTYA). The company’s fourth quarter of 2012 financial results easily surpassed the Zacks Consensus Estimates.

Why Kept at Neutral?

Liberty Global is gradually establishing a strong foothold in the European cable MSO market.We believe that the long-term business fundamental of the company is very intriguing, primarily due to strong demand for its digital cable-TV services, faster broadband and triple-play bundled offerings.

The company is systematically conducting a share buyback program. However, business integration risk persists as Liberty Global has decided to acquire several companies either partially or fully.

Moreover, Liberty Global is currently trading at significantly higher multiple with respect to several valuation metrics compared with the industry average and the S&P 500. The stock price has soared nearly 66% over the last year and is currently trading at a 52-week high end.

We believe that this high level of valuation may restrict any above market gain any time soon. Liberty Global currently has a Zacks Rank #2 (Buy).

Risk/Reward Almost Balanced

On Feb 2013, Liberty Global entered into an agreement to acquire 100% stake of Virgin Media Inc. (VMED) in a cash and equity deal. Both the companies are expecting the deal to be completed by the second quarter of 2013, subject to customary regulatory approval. If this deal gets approved, then Liberty Global will become a formidable challenger to BSkyB, the largest pay-TV operator of the U.K. and BT Group plc. (BT). BSkyB is partially controlled by News Corp. (NWSA). 

On Apr 2013, Liberty Global acquired a 12.65% ownership of Ziggo, the largest cable MSO in Netherlands. At the end of 2012, Ziggo had more than 2.2 million digital TV subscribers, almost 1.8 million Internet subscribers and 1.5 million telephone subscribers. A major positive for Liberty Global is that Ziggo currently has a dividend yield of about 7.4%. Liberty Global expects Ziggo to pay about $473.5 million to investors as dividend in 2013.

Nevertheless, Liberty Global is predominantly operating in Europe, which at present is economically the most vulnerable region. Ongoing debt crisis in several European countries may significantly affect the future prospect the company. Management is gradually concentrating on western and northen Europe. However, the recessionary pressure is most severe in that region.

 
BT GRP PLC-ADR (BT): Free Stock Analysis Report
 
LIBERTY GLBL-A (LBTYA): Free Stock Analysis Report
 
NEWS CORP INC-A (NWSA): Free Stock Analysis Report
 
VIRGIN MEDIA (VMED): Free Stock Analysis Report
 
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