TheJuice's Projections for Level 3 in 2009

February 21st, 2009 by · 6 Comments

Hello everyone. I backed up the truck so to speak at .72 cents on Level 3 Communications (NYSE:LVLT, news, filings) equity on Friday so I thought I would take a minute to update a few spreadsheets and get my vision of the future out there for discussion.

First I did a quick and dirty ev/ebitdas calculation based on what I think is market price on the equity and debt which came out under 5. I’ve also included the calculation assuming face value of the debt, which came out under 7. I wanted an entry point under these numbers. Here’s that spreadsheet. I posted something close to this on the IV board however after going back through the 2009 numbers I’m a bit more optimistic on the ebitdas number, which I’m projecting here at 1150 for FY09 (more on that below).

Second, here’s my view of the 2009 results. As you can see I’m projecting pretty flat top-line numbers. I would like to think we can grow around 5% in CNS but being that we’re on the threshold of eating cat food for Thanksgiving, I’m going to just stay pat. As far as gross margins go, well this has been a big disappointment to me. I thought we would have this number in the 70’s by now. Regardless, I think we will see more improvement in 2009 as we shut down Broadwing and finish Unity. As to SGA and CAPEX, hopefully our newly acquired executive can cut more fat.

Assuming I’m in the right ballpark, under this scenario we generate around 150M in cash in 2009 to add to 768M at the end of 2008 for a total of 918M and then we spend 199M to payoff the 09 debt leaving us with 719M going into 2010 (we have app. 533M due in 2010). All this tells me that we are clear up to 2011 when we will have to refinance the app. 600M due that year, something I think we will be prepping the markets for over the next 24 months (enron has articulated this quite well on the IV board if you want more info on this subject). If we could just get some organic growth this factory would really start to mint money. Good luck out there and I look forward to your comments!

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6 Comments So Far

  • jeremy drane says:

    please note that i found an error in one of my calcs. the cell in green is corrected. i orginally was using the number of diluted shares not the value of the equity. net net, we are actually trading under 6 ev/ebitdas assuming 1150M in ebitdas. ill send rob the corrected spreadsheet but here’s the corrected number.

    ev/ebitdas – FV of debt 5.922

  • jeremy drane says:

    rob its in your inbox. thx. sorry for the mistake.

  • Rob Powell says:

    All fixed, thanks juice!

  • jeremy drane says:

    rob, i used LVLT’s Q4 investor packet to update the debt schedule – there were some mistakes/changes. consequently im going to send you a revised schedule that matches what LVLT put out and would request you update the post. thx.

  • Professor Plum says:

    Not sure how updated this is, but it’s totally unrealistic to assume that the behemoth gets capital spending down to below 10% of revs. They have underspent on their capex for the last 12 months and they admit it on their calls. At some point, something has to give — the ability to provision and maintain customers or capex restraint.

    And you are ignoring about $600MM of debt maturities over the next 18 months…

  • Eric S says:

    Juice, thanks for posting.My usual issue is that I think your other/sbc contributions are too high.

    Re: Plum’s comment. I think the Juice may be a dozen or two basis points low on the capex / sales rate but agree with him in principle & substance that that with major unity spend behind the company there is a nice step down in 2009. If it were any higher, he would need to walk up that core cns growth rate into positive territory.

    I will also say related to the early Jeff Storey imprint on the company, my checks in the enterprise channel have been surprisingly good – a first in 2 years for me.

    The last thing worth mentioning is that if you did not read through the stimulus bill the legislature has made it easier to buyback debt. While the tax advantage does not impact level 3 given its NOLs today, there would be a future benefit if LVLT continues down this path.

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