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Cable Operators

Analysts Still Bullish on NTL

8/11/2006 8:00 PM Eastern

Despite a weak second quarter, Credit Suisse First Boston cable analyst Brian Kraft repeated his “outperform” rating on NTL Inc., adding that the U.K. cable operator’s stock price reflects an overly pessimistic view of the U.K competitive landscape.

NTL reported weaker-than-expected subscriber trends in the second quarter — basic-subscriber additions were 8,000 in the quarter, above Kraft’s estimate of 7,000 additions, but high-speed Internet growth of 105,00 customers (versus Kraft’s estimate of 153,000 additions) and voice customer losses of 22,000 (versus Kraft’s expectation of a 5,000 subscriber increase) fell far short of the mark. Revenue ($1.68 billion) and cash flow ($557.3 million) also came in below Kraft’s estimates of $1.69 billion and $570.6 million.

On the positive side: Digital subscriber additions of 74,000 were above his estimates of 38,000 net additions, and average monthly revenue per unit (ARPU) rose to $80.28, the third consecutive quarter of growth.

While Kraft adjusted his model to account for reduced net additions across all three product lines, he believes NTL’s story remains intact: Management is on track to achieve $473.3 million in synergies by the fourth quarter; the turnaround in the old NTL systems is underway; and the valuation, at 5.5 times 2007 free cash flow, is attractive.

Kraft also adjusted his model to include Virgin Mobile, the U.K. wireless telephone service provider NTL acquired for $1.7 billion earlier this year.

“We remain bullish on NTL’s stock,” Kraft wrote in his report. “We believe that NTL’s stock price currently reflects an overly pessimistic competitive scenario, without assigning any probability to more positive outcomes.”

September