Special Situations: short Altice / long Numericable
Overvalued holding co. structure ATC NA: Eur 32.35; NUM FP: Eur 29.00 April 1, 2014 We recommend shorting Altice while going long Numericable and other European cable assets which are relatively undervalued. As discussed in our recent Euro Telecom event driven report, Altice controls Numericable of which it owns 40% as well as other cable/telecom assets primarily in Israel (HOT) with smaller interests in Portugal and the Benelux. While Numericable is listed, the other cable assets aren’t. In fact, HOT was recently taken private by Altice. The implied value of the unlisted businesses are way too high. For Altice to be fairly valued, the non-listed assets would have to sell on more than 5x ev/sales and at least 13x ebitda. These are excessive valuation metrics given Altice’s ebitda margins. We think the non-listed assets should be valued more toward 4x ev/sales and 10x ebitda. In that case, the holding company would be on a premium of 35% to NAV. We recommend going short Altice and long Numericable pro-rata of the capital structure (the trade could currently be overhedged in Numericable as the two stocks are likely to be highly correlated during the SFR offer). The resulting short exposure can be hedged buying TNET BB, ZONOP PL, JAZ SM. Unfortunately, it is difficult to hedge the Israeli cable/telecom assets as none of the available possible comps (Cellcom, Partner, Bezeq) are close enough to HOT, the Israeli subs (the Israel “risk” could be hedged via shorting the above comps. However, we do not think this makes a compelling trade right now. On the other hand, Jazztel, Zon Optimus, and Telenet could all be potentially bought out). FULL REPORT ATTACHED