Zacks_Analysts' Blog : Virgin Media Remains Neutral - Analyst Blog

Virgin Media Inc. (VMED) reported weak financial results for the third quarter of 2011. Both the company’s top line and bottom line fell below the Zacks Consensus Estimates. However, those who still subscribe to Virgin Media’s services have shown their preference for the company’s high-margin bundled services. In the previous quarter, the company added net 127,200 Internet TV customers.

Virgin Media’s bundled services offerings are receiving increasing market traction. At the end of the previous quarter, triple-play and quad-play penetration climbed 66% and 13.7% year over year, respectively. Management cited two positive factors for its future growth: (1) TiVo Inc. (TIVO) developed next-generation TV platform supporting on demand broadband video services and applications (2) gradual roll-out of ultra-fast 100 Mbps broadband network. We reiterate our long-term Neutral recommendation on Virgin Media.  

Virgin Media has revamped its business model as a pure-play pay-TV service delivery and telecom company rather than a content provider. In July 2010, the company sold its TV business to British Sky Broadcasting for approximately $234 million. In August 2011, the company sold its 50% stake in the UKTV to Scripps Networks Interactive Inc. (SNI) for approximately $553 million. Virgin Media wanted to sell its UKTV stake as part of its strategy of disposing non-core assets to concentrate on its cable businesses. The money raised from UKTV stake sale will be used to expand its high-speed broadband networks.

Virgin Media has targeted a leverage ratio of Net Debt-to-Operating Cash Flow of approximately 3.0x within the next 2-3 years. In July 2011, the company announced a new capital return program of GBP 850 million. Out of this, GBP 625 million will be paid through share buy back, which will be completed by the end of 2012. The remaining GBP 225 million will be paid through repurchase of the company’s debt and convertible securities. Recently, the company announced a fresh share buy-back program of GBP 250 million. These capital return programs will be completed by the end of 2012.