Virgin Media Inc. (VMED) is, in our view, in the early stages of a turnaround, poised to generate strong free cash-flow growth and improved EPS in 2009. A new management team is re-branding the services (formerly notorious for poor customer service and rolling out digital services to stabilize ARPU), reduce churn and slow its market share drain from the onslaught of new entrants into VMED's markets.
The company remains focused on leading in next-generation broadband and redefining the TV experience through VOD (video on-demand). On the cost side, we expect lower interest expense, capital expenditures and income taxes to increase free cash flow in 2008.
A pending deferment of bank debt payments to 2012 from 2009, and easing of covenant restrictions is shifting investor focus to fundamentals from liquidity issues. The debt deferment should not only provide financial flexibility but allow investors to focus on VMED's fundamentals.
Shares of VMED lost 50% of their value, versus 20% for the S&P500, from September 26 through October 27, as the credit markets seized up and investors became dubious of VMED's ability to pay or refinance its 2009 and 2010 required debt payments.
