We reiterate our long-term Neutral recommendation on
Virgin Media Inc.
) based on the company's mixed financial results for the fourth
quarter of 2012. Although revenue surpassed the Zacks Consensus
Estimate, earnings per share fell below the same.
Why Kept Neutral?
On Feb 5, in a significant strategic move, Virgin Media came
out with a joint press statement with
Liberty Global Inc.
). Through a cash and equity deal, Liberty Global will acquire a
100% stake in Virgin Media. The deal implied a total
consideration of around $15.8 billion or an enterprise value of
nearly $23.3 billion.
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 Virgin Media will
become a formidable challenger to BSkyB, the largest pay-TV
operator of U.K. BSkyB is partially owned by global media giant
Virgin Media currently has a Zacks Rank #4 (Sell).
Balanced View on Virgin Media
In the fourth quarter of 2012, Virgin Media improved
itsaverage monthly churn rate to 1.1% from 1.3% in the year-ago
quarter. Subscribers opting for the company's services have shown
their preference for its high-margin bundled services with
super-fast broadband offerings.
Another major growth area is the company's next-generation
video services using
) developed Internet-connected TV platform. At the end of 2012,
the company installed Internet-connected TV platform for
approximately 1.33 million customers, which is 35% of the
company's total installed TV base.
In the fourth quarter, the company added a net total of
187,300 Internet TV customers. Pay-TV customer base grew by
59,900 in the last quarter.
Virgin Media is currently trading at the high end of its
52-week price range. The stock price has moved up by a whopping
116.6% in the last year compared with 22.2% in S&P 500 over
the same period.
Moreover, the stock is currently trading at significantly high
multiples compared with the S&P 500 with respect to several
valuation metrics. We believe that Virgin Media has limited
potential to offer above market gain in the near future.
LIBERTY GLBL-A (LBTYA): Free Stock Analysis
NEWS CORP INC-A (NWSA): Free Stock Analysis
TIVO INC (TIVO): Free Stock Analysis Report
VIRGIN MEDIA (VMED): Free Stock Analysis
To read this article on Zacks.com click here.