Having looked at the relative trends in EBITDA margin, Revenue, Capex, and EBITDA-Capex across a selection of public fiber-based competitive telecoms, it is now time to take another look at valuation trends. In other words, how has the market's perception of these companies changed in response to the movement of these various metrics, both collectively and individually? First a few details:
- I am still basing this on 2009 EBITDA estimates as of the time of each measurement - the latest datapoint being Friday 11/27. You can find 2010 projections from any analyst spreadsheet - including my own - I just do not feel comfortable actually putting my name on any of them just yet.
- I will still present Enterprise Value using both the market value of debt and the absolute value, but because the financial crisis has eased and most debt is trading near par the graphs don't look so different anymore - mostly just for Cogent Communications (NASDAQ:CCOI, news, filings) and Level 3 Communications (NYSE:LVLT, news, filings) which still have a fair amount of debt trading below par.
With no further ado, here is the latest update:
As you can see, the overall upward trend in sector valuations remains intact, however since September the rally has faltered a bit. I think this simply reflects the fact that hopes of a powerful and quick recovery amongst network providers have faded. But only somewhat, every one of these companies is leaner and meaner and ready to take advantage when demand surges - the problem is figuring out when that will be.
On an individual basis, the situation diverges. The metro specialists Abovenet and TW Telecom have continued to gain favor with the market, as have the less fiber-intensive CLECs Paetec and Deltacom to a lesser extent. Both trends are deserved. The former have been outperforming the sector reliably, while the latter have survived the recession in much better shape than many people expected.
But the companies with a more substantial focus on longhaul IP and fiber services all lost favor in the past few months: Level 3, Global Crossing, XO, and Cogent. That's not a trend I had recognized until putting together this chart. I discount XO's movements, as they are tied more to Icahn's actions than to anything operational. But as for the other three, what is the common thread that the market is paying attention to? Their operational performance has not been particularly similar of late. Perhaps it is the pricing pressure for IP services in Europe (especially in the East), to which all three are exposed? I'd be interested in any thoughts.
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