Every quarter I like to take a look at where the sector stands in terms of its valuation of fiber assets. One of the major metrics used to compare valuation amongst competitive telecoms is the ratio between Enterprise Value and EBITDA, or EV/EBITDA, which incorporates the company’s debt and ignores depreciation and amortization. The latter are of course real costs, but they tend to be hard to compare against each other due to the distortions introduced over the last 10 years in the sector. The economic environment of course has become so toxic, that the market value of the corporate debt in the sector is generally below par, and for accurate comparison that discount must be applied to its EV. I have compiled the following list, which seeks to calculate (or estimate where necessary) the current EV/EBITDA ratios for publicly traded, competitive, fiber-based telecoms. With no futher ado, here is the current spreadsheet:
EBITDA projections are the low end of guidance where available, and are my own guesses elsewhere (intentionally conservative). As you can see, EV/EBITDA ratios lie generally between 3 and 6 throughout the sector. Companies with better cash flow outlooks and a greater focus on metro connectivity tend to have better relative valuations. Those with either longhaul or greater CLEC focus tend to have lower ones. What about the trend? I last compiled the list just before New Years, this table shows the change since then:
So Q1 was actually pretty good for fiber, relatively speaking. With the exception of glbc which didn’t change much, everyone’s valuation rose in the quarter. It was particularly good for abvt, which finally emerged from under its rock and posted solid numbers in actual SEC documents at last. They trade on the pinksheets and quite infrequently, but it is clear that the market liked what they saw.
Valuations remain far far lower than the heady days when EV/EBITDA multiples of 10-12 were common. It isn’t really the cash flows which have changed since then, just mood – from a high level of optimism to a similarly low level of pessimism. But things haven’t gotten worse, and now it is springtime – maybe for fiber as well?
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