Two weeks ago, I looked at the new valuations of nextgen facilities-based telecoms, and it seemed that the markets had decided on an enterprise value to EBITDA ratio of roughly 5-6. Well, the market apparently wasn't done. While only LVLT has reported, the market has continued to devalue the sector indiscriminately. So let's take a look at the same table I showed last time, updated to Friday:
|Symbol||Market cap||Cash||Debt||EV||2008 est Ebitda||EV/ Ebitda||Cashflow Picture|
|LVLT||1204||587||6650||7267||990||7.3||Neutral to Slightly positive|
|GLBC||501||318||1393||1576||320||4.9||Neutral at best|
|ITCD||109||61.3||302||349.7||85||4.1||Neutral at best|
- GLBC marketcap includes 18M preferred shares
- LVLT marketcap and debt reflects Oct debt/equity swap
- XOHO cash and debt reflect Q2 refinancing
So now most of the valuations check in at 4-5. Once again, XO and LVLT are too high mainly because their debt is so high relative to their marketcap and in this table I have used the face value of their debt. But to get a sense of where the market really values them, we would need the market value of their debt.
XO's debt doesn't trade, so we can only guess. LVLT's debt however, does trade. Most of it anyway, and according to my research I now estimate the blended price of its debt as of late last week was 65 cents on the dollar. Using that estimate, the effective EV/EBITDA ratio for LVLT is 4.98 - which fits right into the 4-5 range for EV/EBITDA following the market's punishment late last week.
Now LVLT has over $6.6B in debt and enough of it is due in the next couple years to make people worry, so the fact that it trades at a discount in this environment is, perhaps, not terribly surprising. But who would have thought that some of the debt (2.375% converts due 2026) of a company like TW Telecom would be trading this past week at 51 cents on the dollar. The company is in no danger at all, its revenues are sticky, it generates cash and has plenty of it, and it recently achieved profitability. If that doesn't speak to the insanity of this market, I don't know what does. I wonder if they are buying some of it back now like Cogent is...
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