The Dawn Of Liberty Global PLC (LBTYA)’s New Tracking Stock LiLAC Class A (NASDAQ:LILAV)

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As part of the earlier announcement by Liberty Global plc – Class A Ordinary Shares (NASDAQ:LBTYA) and Class B and Class C shares, LiLAC Class A (NASDAQ:LILAV) came into being from July 1. The idea of tracking stock is to provide an avenue to tap the growth opportunities available in Latin America, as well as the Caribbean, within Liberty Global. The primary focus of the tracking stock is these two markets. At the time of the company announcing its intention of issuing tracking shares there was a sense of anxiety as to how that is going to work. Let’s look at the company plans and whether it will benefit the shareholders.

Structure Of LiLAC Group

Liberty Global PLC issued different types of shares, like Liberty Global plc – Class A Ordinary Shares (NASDAQ:LBTYA), Liberty Global plc – Class B Ordinary Shares (NASDAQ:LBTYB), and Liberty Global plc – Class C Ordinary Shares (NASDAQ:LBTYK). The company distributed all class of shareholders one LiLAC share for every 20 Liberty Global shares of the same class. The company indicated that it expects its class A and C shares of LiLAC Group to trade on NASDAQ under the symbols LILA and LILAK respectively. The new LiLAC Group’s Class B ordinary shares will trade on OTC Bulletin Board under the symbol LILAB. There is no change in the Liberty Global PLC shares symbol for a different class of shares.

Tracking stock is a kind of share that keeps track or relies on the specific business’ unit’s financial performance compared to the whole of a company. Tracking stock is also issued for operating divisions of a firm. Such issued stocks are traded as separate securities. However, it is not a separate legal entity. That is because Liberty Global PLC will oversee LiLAC Group also, since there will not be any separate shareholders.

The objective of the tracking stock is to create a pure-play on the two key markets. The move will also track the economic results and offered transparency in its operations of the LiLAC Group. The Britain firm indicated that LiLAC Group will have 100% control in VTR.com and 60% in Liberty.

Investment Opportunity

LiLAC Class A (NASDAQ:LILAV) sees enough opportunities for investment for attractive organic growth. That will be supported by innovation. The company hoped to explore the region, which is highly fragmented. Also, the firm believes that the region has low broadband, as well as Paid TV penetration. The company wants to tap the existing opportunities. That will be done with a focus on mid-to-high-single digit rebasing of operating cash flow (OCF) in the medium-term.

The cable operator is offering advanced networks with a clear speed leader by delivering 100+ Mbps in Puerto Rico, as well as Chile. Its investments in high-quality HFC and fiber-deep based networks enabled it to surpass four million homes in Puerto Rico and Chile. The Group’s innovation included next-generation Horizon TV that is set to be launched in Chile in the current year. While enhancing quad-play further in Chile through MVNO strategy, the company sees tremendous B2B growth opportunities. The group is equipped with an experienced management team to provide attractive organic growth along with M&A overlay. There is also a tremendous opportunity for exposure to Latin America’s cable sector.

Financial Metrics

LiLAC Class A (NASDAQ:LILAV) has 1.5 million customers, while 3.7 million homes passed in the last year. Revenue reached $1.2 billion, whereas P&E additions were $256 million. Revenue generating per unit is 3.2 million. The company’s OCF is witnessing 14% and 16% growth respectively in the years 2013 and 2014 respectively. In the first quarter, OCF grew 6%. The focus appears to be to generate mid-single-digit rebased OCF uptick and limited FCF in the current year. Rebased revenue recorded 6% growth in 2013 to be slowed to 4% uptick in the year 2015. For the first quarter, rebased revenue advanced 5%.

Liberty Global PLC – Class A Ordinary Shares (NASDAQ:LBTYA) and LiLAC has identified superior organic growth as one of the areas for value creation. That apart, mergers and acquisitions will remain another focus area. The third factor is the capital structure management for creating value to the shareholders. The group made it clear that it is open to engaging itself in acquisition. Liberty Global has confirmed its free cash flow outlook of $2.5 billion for the current year.

Key Factors To Ponder

There are some of the key factors that might be in favor of LiLAC Class A (NASDAQ:LILAV). The group has some attractive product offerings with a leadership position in broadband speed. For instance, its Triple-Play package accounted for 47% of its total bundling in the first quarter.

VTR, which is a leader in cable operations, enjoys a solid market share in different verticals. For instance, its market share for broadband was 59%, while its Paid TV market share was 57%. Similarly, voice market share was 54% last year.

At the end of March, VTR had 118,000 post and pre-paid mobile subscribers. About 14,000 postpaid net additions were reported in the first quarter, which was a record for any quarter.

Sustainable speed leadership, with the help of WiFi connectivity and expansion of the cable footprint, are growth drivers. Similarly, untapped SoHo/B2B will provide an opportunity to grow while the group is well placed to drive mobile growth. Also, Paid TV is expected to witness penetration levels of 79% in the year 2017, from the estimated level of 69% in the current year, and compared to 54% in 2013. Similarly, broadband penetration is predicted to reach 59% in 2017, from 44% in 2013 and an expected 51% in the current year.

Conclusion

There is no doubt that there are enough opportunities for growth within LiLAC Class A (NASDAQ:LILAV) and Liberty Global plc – Class A Ordinary Shares (NASDAQ:LBTYA). The new tracking stock will provide investors an opportunity to invest in the growth of cable and broadband in Latin America through a John Malone entity.

Disclaimer: The opinions and data expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisory capacity, nor is this an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the company or companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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