EBITDA Margin and Valuation Trends Update for Competitive Fiber 5/2011

May 16th, 2011 by · 11 Comments

I have finally updated my competitive telecom trends graphs both with new data and also with some new technology that makes them easier to read and interact with.  Enhancements include: 1) the ability to hide/show each company's data interactively, 2) display of the numerical value when hovering over a datapoint, and 3) valuation projections that include the current stock price.  I am still tweaking the style, let me know if you have any ideas to help improve the presentation.  First up, let's take a quick look at how EBITDA margins have been evolving recently:

Adjusted EBITDA Margin for Competitive Network Operators

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Note the steady rise of both Zayo and Cogent Communications (NASDAQ:CCOI, news, filings) lately.  Cogent's improved margin performance has come entirely via organic means, while Zayo's include both organic and inorganic (e.g. AFS and AGL) components.  PAETEC saw a small inorganic boost from the Cavalier deal in the last two quarters, while Global Crossing took a seasonal margin dip in Q1.  Everyone else has been largely tracking within normal ranges lately.

And now let's take a quick look at EV/EBITDA valuation trends:

Relative Valuation (EV/EBITDA) for Competitive Network Operators

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Here, note the big valuation boost Global Crossing got via the Level 3 deal announcement.  For that matter, Level 3 has gotten a substantial valuation boost since then as well, continuing to lead the pack in this metric.  Actually, just about everyone is up since last autumn, as the market has been turning a favorable eye toward competitive network operators.

As regular visitors probably know by now, you can find these graphs at any time via the Competitive Telecom Trends link up in the Resources box.  Also found there are related plots of Capex/Revenue, EBITDA-Capex/Revenue, and Relative Revenue Growth.

XO's data will hopefully be in later today, I will add it soon thereafter and the plots will be automatically updated.

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Categories: CLEC · Financials · Metro fiber

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11 Comments So Far


  • Rob Powell says:

    Darn, it’s not working in IE. Firefox only for the moment – working on it.

  • Paolo Gorgo' says:

    Simply fantastic. Thanks.

  • Looks great in Chrome. Using the current price is a welcome change!

  • Vik Grover says:

    CBEY should not be in this chart, they are a UNE-L, Special Access and EEL provider with no fiber product to speak of.

    • en_ron_hubbard says:

      Vik,

      That is true, but then neither PAET, XO or ITCD should be on the chart either since they also have very large UNE components to their revenue. No chart that captures a diverse group such as this will be perfect, but it can still be instructive which I think it is because it prompts the questions that it answers regarding relative margins and valuation.

  • TE says:

    Would the following summation be true – the more fiber the company has installed to “lit buildings (or towers)”, the higher the margin?
    Is a generalization like that a fair statement?

    • en_ron_hubbard says:

      TE,

      The answer would generally be yes. This is a simplification, but if a service provider is generating revenue from a building but doesn’t own the fiber connection then it is paying a third party (usually the LEC) to lease connectivity– usually over a copper loop. Copper is ubiquitous. This is why companies like TWTC.CCOI, etc have higher margins than, say, XO. Of course there is a price to be payed for this which is the necessary level of capital spending, once again expressed as a % of revenue, is typically far higher.

      • TE says:

        As a followup, recognizing the limitation of generalization, don’t the “last mile” fiber providers have the best outlook? And, if so, wouldn’t the priority for these providers be to “light” as many buildings/towers as possible as fast as possible?
        Or, put another way, does it prove Zayo’s plan? EasyTel’s plan? etc.

        • en_ron_hubbard says:

          Generally they will, subject to having the capital available, light those “buildings” where the economics justify it. There was a thread on this board where that was discussed within the last week. If you assume it costs in the order of $40-50 K to run a lateral to a building and light it up then you require about $4,000 in monthly billings and a three year contract in order to generate a ~30% ROI over the contract life. This assumes 50% EBITDA margin on that revenue. Clearly some builings will sometimes get lit by someone without that guaranteed revenue, but there is a limit to how much spec activity will go on. All of the above assumptions are gross averages and there is probably a lot of variance around the averages.

          That said, there is probably a lot of life left in copper plant and many CLEC’s make a good living leasing it– it will be a long time before fiber is run to your local Dominos, service station or small business, but they still need voice and data.

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