|
Here we are ! Dresdner schreibt: Primacom’s move into interactive services could trigger to a 2 to 3-fold valuation upgrade over the next 3 years. We lift our share price target from ¤48 to ¤75. Further upgrades are possible from the partner ship with UPC, further acquisitions and the introduction of set-top box services. • German CATV to be re-rated. With the dawn of interactive broadband cable services in Germany, we expect a re-rating of the German CATV sector closer to international levels over the next 12-18 months. US and UK cable pre subscriber valuations of more than ¤5,000 compares with about ¤1,200 per subscriber in Germany. • Primacom will have first mover advantage. Primacom’s strategy shift from a pure consolidator of cable assets to provision of interactive broadband services comes at the right time – before the sale of Deutsche Telekom’s cable assets. Pimacom will be the first to offer commercial cable modem services in Germany. • Strong EBITDA growth from Internet services. We estimate additional EBITDA in 2004 of ¤33m from internet services - a 21% increase to our base case. Primacom basic CATV business continues to deliver sound EBITDA margins of over 50% (52.8% for the first 9 months of 1999). Subscriber growth is in line with expectations, acquisitions lag slightly behind. • Short term share price target raised to ¤75, We raise our short-term share price target from ¤48 to ¤75 based on discounted cash flow valuation for a full network upgrade and internet services to be launched in Q1 2000. Set-top box based service revenues have not been included. • Further upgrade potential over the next 12month. UPC’s participation in Primacom, the introduction of set-top box based interactive services and the potential purchases of DT’s CATV regions are likely to trigger further upgrades. At our target price Primacom still lags international cable valuations with ¤1720 per subscriber (target price) compared to about ¤5,000 in the US. Re-rating of German CATV within the next 12-18 months International cable valuations keep increasing as cable modems and interactive services are introduced. At the beginning of 1999 US cable TV customers were valued at about ¤3,000-4,000, they are now valued at about ¤5,250. Representative examples include Cablevision ($72.4), Comcast ($44.6) and Cox ($47.3). Primacom is planning to introduce cable modem internet services in Q1 2000. 40,000 homes in Leipzig are already upgraded and ready for service. Business plans of potential bidders for Deutsche Telekom’s cable network are built on interactive service revenues. Deutsche Telekom is selling its CATV network divided into 9 regions and the sale is expected to close during this year These events will trigger a substantial re-rating of German cable assets over the next 12-18 months – triggered by cable companies, which will plan and announce the upgrade of their networks from 450Mhz to 862Mhz. Upgraded over the next 2-3 years, the additional bandwidth will be used for digital TV programming and interactive services. However the initial driver will be broadband internet access through cable modems. Other reasons why investors currently value Geman cable assets cautiously are: German cable network ownership is fundamentally different to other countries. Backbone owners include Primacom and Deutsche Telekom, which also owns some of the last mile. However there are about 5,000 other small and medium size cable companies that own the last mile. Primacom owns the last mile of all of its customers, about 70% of which are connected to its own backbone network. Low revenues per subscriber. At about ¤10 per month per subscriber German cable revenues are about a third of revenues in the US or UK. Strong basic content. The basic cable TV package includes about 33 channels. Pay- TV will face an uphill struggle because of the excellent basic package and the lack of set-top boxes in people’s homes. In Germany the basic package does not require set- top boxes just standard TV sets. Once networks have been upgraded and the attraction of cable modem services will be better established, there is no reason to value German cable subscribers at a lower level than in the US. The US is in particular a good example as cable penetration of household is very similar to Germany i.e. 50-60%. However internet penetration in Germany is lower than in the US. If we assume Primacom will have fully upgraded its network by 2003, value it with ¤5,000 per subscriber and discount it with our WACC of 9.8%, a Primacom subscriber could be worth ¤3,400 today. Primacom currently trades at an Enterprise value of ¤1,500 per subscriber. If we apply international valuations to Germany, Primacom’s valuation could more than double i.e. 3400 per subscriber. Our estimate for network upgrades in Germany average at around ¤500 (DM1000) per subscriber. Or, assuming 920,000 subscribers at the year-end at •¤3,400 per subscriber, existing net debt of ¤191m plus another ¤460m for network upgrades (conservatively assumed that all of it will be fully debt financed) and 19.73m shares, Primacom could be worth a minimum of ¤125 per share. We believe that the sale of DT’s CATV assets and Primacom’s launch into interactive service will increase the transparency of the German CATV market could bring valuations closer to international levels. Internet services should lift valuation in the short term We raise our short-term share price target from Euro 48 to 75 based on Primacom’s launch of cable modem services. Our DCF valuation includes the full upgrade of Primacom’s existing network and the introduction of internet cable modem services. The network upgrade will also enable Primacom to offer voice over IP and set top box based services for example additional digital TV channels, pay per view, video on demand and additional radio services. Revenues from these services are currently not included in our DCF. Subscriber assumptions We assume the upgrade of the existing network will be aggressively targeted over the next 4 years. After Primacom has upgraded 1.1 million customers we currently assume no further built as the company currently targets to upgrade about 70% of its existing customers at the time. However we would expect Primacom to connect new customers with interactive services to expand its footprint or leverage its homes passed At the end of our forecast period in 2008, we expect about 543,000 cable modem customers. That is about 19% of households or about 9% of the covered population. In 2004 we expect about 191,000 customers or 7.5% of households and 3.5% of population. Current internet forecasts for example from Jupiter suggests 33% internet population penetration in 2002 with growth rates of 5-7 percentage points added each year. If we conservatively assume 40% internet penetration in 2004 and 60% in 2008, Primacom would have a market share of 9% in 2004 and 15% in 2008. Assuming all internet access in 2008 is broadband, Primacom’s cable modem together with Deutsche Telekom’s T-DSL offer will be the first in the market and competition will mainly arise from xDSL technologies, we believe these estimates are conservative. Revenue assumptions Primacom will offer its cable modem service with a speed of 1 Mbit/s for about DM 100 per month with unlimited access to the internet and also an ‘internet lite’ offering for about DM60 with a volume based usage charge. That offer is very competitive as DT’s T-DSL with a speed of 768kbit/s downstream and 128kbit/s upstream currently costs DM 50 per month (only available bundled with ISDN with total costs of DM 99/month). In addition DM100 for 50h internet use per month or DM150 for 100h usage per month. In the first four months after introducing T-DSL in 8 Germany cities 60,000 applications were made to DT and we expect the number to increase to 100,000 by the end of 1999. That highlights the demand for broadband internet access. We assume that Primacom’s monthly revenues for basic internet access (excluding content) will decline from DM 80/month to DM 45/month in 2008. Two forces will determine monthly revenues in the long term. Firstly we expect that competition will increase after the initial demand for broadband internet services has been satisfied. However we expect only a few companies will be able to offer broadband internet access in the areas Primacom is present. Primacom, Deutsche Telekom and probably Mannesmann will be the key/only players in the first few years. Secondly we assume Primacom will build up internet competencies to offer a continuous stream of new services via cable modems. These new services will increase monthly revenues. For example the company plans to introduce voice over IP and multimedia services as well as providing services to business customers. Despite potential additional revenues from these services we currently assume ARPU (average revenues per user) to drop. Cost estimates Customer acquisition costs are expected to start from a low level as there is unsatisfied demand and Primacom initially is marketing to its existing customers. However with competition to grow stronger we have drastically increased acquisition costs from DM 20 in 2000 to DM90 in 2004 and DM180 in 2008. Customer service costs reflect industry standards levelling at DM80 and the increase in internet related employees reflect the build up of internet competencies. We expect the EBITDA margin for cable modem services to reach 60% in the final year reflecting the relatively low operating costs and the add-on character of the cable modem business. For network upgrades we assume DM1000 (¤500) per upgraded customer written down over 8 years. These costs reflect investments in fiber loops (about 20% of investments) and the upgrade or installation of the coax cables to the home. We expect Primacom to fully subsidise the cable modems. We estimate that costs for cable modems will decrease from DM500 today to about DM150 in 2005 and remain stable thereafter. Investments in cable modems will be activated and depreciated over 4 years. Valuation based on Discounted Cash Flow As laid out in our model at the end of this note, we use a WACC (weighted average cost of capital) of 9.3% and a terminal cash flow multiple of 18.9 based on a long-term expected growth rate of 4%. Based on these assumptions we value the cable modem business ¤430m or ¤21.8 per share. We value the basic business at ¤1,046m or ¤53 per share. Therefore we raise our share price target from ¤48 to ¤75. Basic business contributes strongly Primacom’s Q3 report was in line with our expectation. The company continues to operate basic CATV services very efficiently. Total number of subscribers as of now is with 920,000 behind our year-end target of 966,000. However according to Primcom, the company is in discussions with a couple of operators about potential acquisitions and we will therefore not change our estimates for the following years. For a more detailed overview of Primcom’s basic CATV business please refer to our researches ‘PrimaCom – In prime position’ from 1 July, 1999 and PrimaCom – ‘Ready to pounce on CATV’ from February, 1999. Outlook Primacom’s existing network provides independence from DT’s cable network sale. Although a successful acquisition of DT’s network regions would speed up the build out and improve Primacom’s market share more rapidly, Primacom is able to build out its existing network to create a first mover advantage in interactive services. UPC’s purchase of a 17.2% stake in Primacom will strenghten the company’s position in interactive broadband services. UPC’s experience is likely to speed up the implementation of cable modem and set top box based services Expected events with influence on Primacom’s valuation: · Sale of the Deutsche Telekom cable assets. Primacom is interested to buy up to 3 regions. First result are expected Q1 2000. · Introduction of set-top box services expected in Q2 2000. · Details on the partnership with UPC |
|
| aus der Diskussion: | PRIMACOM 2000 (56) |
| Autor (Datum des Eintrages): | Big Sister (18.01.00 19:00:00) |
| Beitrag: | 40 von 67 (ID:363244) |
| Alle Angaben ohne Gewähr © wallstreetONLINE | |