Virgin Media Preview: CS Still Banging Drum

Credit Suisse positive on Virgin Media (VMED). Reiterates Outperform and $24 price target ahead of Q1 results:

The key points to our thesis are as follows:

1. More stable competitive environment with no new unbundling entrants and stable pricing trends.

2. Continued improvement in churn, as evidenced by the company’s 1.2% (pre-announced) churn rate for 1Q.

3. New price increases driving incremental ARPU growth in 3Q and 4Q.

4. Increasing demand for bandwidth differentiating VMED’s broadband service from DSL.

5. Potential asset sales, specifically the content assets, business division, and capital allowances (i.e. tax benefits).

6. Attractive Valuation: VMED trades at an 11.3% unlevered FCF yield (on ’08 estimates) and 4.6x EV/’08 EBITDA.

Our $24 target price implies 6.1x EV/EBITDA and an 8.7% unlevered FCF yield on ’08 estimates.

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