Diverging Autumn Valuations, Margins for Competitive Fiber Operators

Over Thanksgiving I finished the Q3 update for my competitive telecom trends charts, which tabulate various normalized metrics for alternative fiber operators from across the sector.  This autumn we have seen margins continue to expand with few exceptions, but the market hasn’t been giving anyone much credit for the operational improvements as valuations have been going in the other direction.

You can look at the full set of charts in their usual place, but here’s a table looking at the incremental improvement in EBITDA margins in the Q3 numbers we saw reported in recent weeks alongside the change in relative valuation (ratio of enterprise value to annualized Q3 EBITDA based on the stock prices on each of 9/30 and 11/28):

	EBITDA Margin Q2/2012	EBITDA Margin Q3/2012	Change (basis points)	EV/EBITDA 9/30	EV/EBITDA 11/28	Change %
LVLT	22.3%	23.4%	+110	8.67	8.00	-7.7%
TWTC	36.8%	37.0%	+20	8.64	8.45	-2.1%
CCOI	32.5%	32.9%	+40	11.45	10.59	-7.5%
ELNK	19.6%	20.8%	+120	4.38	4.12	-5.9%
WIN	38.8%	38.8%	0	6.14	5.74	-6.5%
LMOS	41.5%	43.2%	+170	5.51	5.82	+5.6%

Obviously these companies span several very different business models (although I’m only looking at those with substantial fiber here).  But it’s clear that of the stocks I track, only the regional provider Lumos Networks has been feeling any love from investors since the end of the quarter.  Everywhere else, fiber has been getting punished.  Level 3 common shareholders have taken the biggest hit, in part since its larger debt load means that changes in sector valuations hit the stock price even harder than they would otherwise.  But even tw telecom, which is still the subject of lingering CenturyLink buyout rumors, has been trending downward in spite of the talk.

Whether the market’s mood is temporary or if there is a sustained shift underway remains to be seen.

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Categories: CLEC · Fiber Networks · Financials