It does seem now that winter was the low point for market valuations of fiber based competitive telecoms in this cycle, because since then there has been a steady upward trend. Part of that has come in the debt markets, where bond prices have in most cases moved closer to par. For instance, back in December, Level 3 bought back a pile ($173M) of its 6% convertibles due 2010 at just 70 cents on the dollar, they now trade in the mid 90s. But common stock has also done well across the sector despite the incessant drumbeat of negative news coverage. Here is a graph with my latest EV/EBITDA calculations for a cross section of the industry:
Data is taken from first quarter results, and EBITDA is chosen as the bottom of guidance where given and estimated where not. Current value of various debt instruments was taken from FINRA data, but of course there is some guesswork in the valuations of companies whose debt or preferred stock is not publicly traded.
The overall upward trend is quite clear. With the exception of itcd, which gets little respect, currently valuations are in the 5-6 region. Those with the largest focus on fiber (TWTC, LVLT, ABVT) come in at a ration near 6, whereas those with a bit less (CCOI, XOHO, PAET, GLBC) are closer to 5. The market doesn’t seem to make too many other distinctions. The biggest beneficiary of the market’s change in mood has been abvt, with a surge in multiple from the 2-3 range back in January all the way to 6 now. That feat corresponds directly to the company’s listing on the NYSE and return to normalcy with the SEC, and the market has clearly welcomed them back from the cave in Antarctica to which they had been banished. The only company which didn’t see a surge since April was ftgx, but they were already getting a hefty premium in April and have recently agreed to be purchased by Zayo.
For those interested, the chart using full value of debt has similar features:
The reason I don’t use this graph so much is because it overstates the valuation of companies with large amounts of debt that is trading well below par. The other day UBS downgraded LVLT common stock, and as part of the reason they said its EV/EBITDA multiple at just over 7 (as in this chart) is too rich. This analysis shows that LVLT’s relative valuation, while definitely not low, is basically in-line with the sector.
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