Altice International - trudging along

All,

Please find our updated model here.

Altice International lives up to the label of stable cable Company. Following the amend and extend transaction, there are limited idiosyncratic risks to the name. Although operationally the Company should deleverage, we expect Altice to maintain in the prescribed 4-4.5x range, and continue to pay dividends out of the structure to maintain these leverage ratios.

We maintain our 3% long position in the Finco (sub) bonds at current levels, yielding 14%. Our size is relatively small, but that is a reflection of Altice International’s weighting within the European High Yield index and the fact Altice International and Altice SFR are seen as proxies for the overall HY market. 

Operationally:

- We had some minor concerns about the pricing power of Altice International in some of its markets, but the last couple of quarters have alleviated these fears. Altice International can pass through price increases, with top-line revenue growing at 7% year on year. Although costs are also rising, EBITDA grew by 6% y-on-y, with FCF also showing positive momentum.

- With CAPEX likely to step down in FY24, we expect a stronger FCF in the medium term. However, we caution that there is likely to be no real deleveraging, with the Company expected to maintain dividends as long as leverage stays in the 4-4.5x range. 

- Note, our model includes the pension liability as part of the calculation of leverage. The Company continue to make contributions to its pension liabilities, and coupled with interest rate movement, the liability continues to fall. 

Altice UK Srl loan:

- Although this loan is now part of the security package of Altice International debt, very little information is disclosed concerning the underlying asset. It is known to be secured by BT shares, but the level of asset coverage is unknown. Management alluded that it is fully collateralised and would need to be written down if the asset coverage (BT shares) didn't cover the outstanding amount of the loan. However, the market is not aware of how the rest of the BT share acquisition was funded and what covenants/conditions attach to other financings. 

Other Issues:

- The process is still ongoing on the sale of Altice's data centres in Portugal. The expectation is for the sale to complete by the Summer but at this moment management refused to give any guidance. Note again, we do not see this transaction leading to any meaningful deleveraging at Altice International. 

- As we have previously stated, our credit concerns centre on the poor documentation and the uncertainty surrounding outflows to cross-support other Altice (Drahi) entities. Note in the quarter, Altice International paid a dividend of €320m plus a further distribution of €170m via loan (which is unlikely to be repaid). We reiterate, despite operational deleveraging, Altice International is likely to maintain leverage in the 4-4.5x range.

Happy to discuss.

Tomás

E: tmannion@sarria.co.uk
T: +44 20 3744 7009
www.sarria.co.uk