Charter Update

Andrew Walker, who publishes some of the best analysis on cable companies including Charter, has a bullish update on his blog. He argues that CHTR is undervalued despite the 35% run up from its lows near $250 less than an year ago to ~$340 today.

I amassed a 4% stake at approximately $300 over 2018.

For 2018, CHTR had a FCF of ~$7B (EBITDA – CapEx) on about 235M shares out for a FCF/share of $25-$30. At current prices this implies a ~12x FCF multiple. This is attractive, but just the tip of the iceberg.

Given the ramp-down in capex, increase in EBITDA, and the guidance regarding debt ratio, it is quite conceivable that in 5 years the FCF/share doubles. As excess FCF is devoted to buybacks, the number of shares can get cut almost in half. This is not as ridiculous as it sounds at first. Over 2019 itself, CHTR is poised to devour about 10% of itself.

If the FCF yield remains the same this implies a 4x increase in share price (keeping up with increase in IV). This implies a IRR of 25-30%.

Even if you haircut the estimates, factor in a recession etc., it is hard to see how CHTR does less than 15-20% over the next five years.

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