Initiation on VMED O2 UK Holdings
All,
Please find our initiation of VMED O2 UK Holdings here.
At 8.3% the VMO2 4 SUNs 1/2030 are a little expensive for our taste, but they offer the best value in the debt stack. The company is structured to carry leverage of 4x - 5x (capped at 5.5x by covenant). Payments are made to shareholders to maintain the leverage levels. This structure is in line with other Liberty vehicles giving it familiarity to investors. Whilst there is no deleveraging story there is an attractive predictability to the name.
Our modelling has FCF/Interest bottoming out at 1.2x. The back-ended maturities also mean that re-pricing of the debt stack doesn’t need to be dealt with before the Jan 2028 maturities. The rationale for the merger between Virgin Media and O2 is the convergence of mobile and cable as providers of data capacity. For the mobile operator, the merger gives access to the cable operator's high-capacity fibre backbone, allowing it to compete more effectively with incumbent telecom providers. For the cable company, there is the additional customer contact point of mobile provision and some shelter against the displacement of fixed cable by 5G mobile.
I look forward to discussing this with you all
Regards,
Aengus
T: +44 203 744 7055