First published in The Tribune, Monday, July 31, 2017 and posted here with the authors kind permission.
The Cable Bahamas (CAB) share price quoted on BISX has suffered a stunning fall of almost 40% in the last 18 months, from $6.50 to $4.00. EPS (earnings per share) dropped from $0.28 in 2014 to a loss of ($0.38) in 2017, and last year quarterly dividends on the ordinary shares were indefinitely suspended.
Therefore, CAB has sunk to a doubtful investment- right?
No, wrong. Proper analysis leads to the opposite conclusion.
The downward share movement results strictly from the uneducated, short-sighted way that Bahamian investors evaluate companies that are making heavy investments to create profitable long-term expansion. CAB’s 2016 annual revenues rose to an all-time high of $180 million, and book value (net worth) increased from $86 million to $135 million in the 15 months to March 31, 2017. CAB is now in the typical transitional stage of equity earnings waiting to catch up with balance-sheet growth.
During its early years, CAB enjoyed successful innovation in The Bahamas while its earnings grew steadily. Its Directors had the vision to see that the domestic cable/TV/ telephone market would eventually mature, leaving CAB to stagnate. New markets had to be found.
The first was in South Florida, where in 2013 four local telecommunications networks were acquired and merged into Summit Broadband, CAB’s wholly owned subsidiary that has enjoyed steady growth but has not yet “turned the corner” to profitability because of continuing capital expenditures and start-up costs.
A much larger commitment to new business began last year after CAB was granted the license to compete with BTC to provide mobile “cell-phone” service in The Bahamas. Incorporated under the brand name ALIV, the new venture made rapid progress from point zero in early 2016, when three international executives arrived to lead with their expertise in mobile-phone technology. A total of $135 million of equity was invested, 48.25% by CAB and 51.75% by a Government holding company that, we are told, will be sold to local investors. Despite its minority position, CAB by the terms of ALIV’s charter holds board-level and management control and consolidates its financial statements.
ALIV also secured $60 million from a bond issue in the local capital markets and $32 million vendor financing, for a total $227 million of capital funding. To date, about $150 million has been spent, including $62.5 million for the license fee and the remainder for operating expenses and network systems, simply to start generating revenue.
About 250 Bahamians (54% female) have been hired, many in managerial positions, and only 3% of total staffing represents expatriates. This build-up in human resources enabled ALIV to establish corporate headquarters near Soldier Road, and to open nine fully staffed customer service centers in New Providence, two in Grand Bahama, and one each in Abaco and Eleuthera, offering a wide array of subscriber plans and phone units.
Intense preparatory efforts and tower construction allowed operations to commence in October 2016, meeting URCA requirements to provide 99% population coverage in New Providence and the other islands After only nine full months of operation, ALIV presently has more than 70,000 subscribers, representing 22% of BTC’s prior customer count, served by 140 live sites, nearly all newly constructed during the roll-out period. Since the end of April, when URCA mandated number mobility, about 5,000 BTC customer have registered with Aliv.
Management plans that the ALIV network will soon be launched in Andros, Bimini and Exuma, and the national roaming agreement already permits ALIV customers to communicate on the BTC network where ALIV has not yet completed its roll-out. Aliv’s reputation as a good corporate citizen is already well established through its educational programs and contributions to many community causes.
The rapid physical build-up and hiring program naturally consumed cash resources, and has eliminated any earnings to date. Operating cash-flow from revenues is projected to turn positive during 2018, sufficient to finance further growth from internal sources. Subsequently, we believe the income/expenditure ratio should curve upwards to permit ALIV to pay dividends, subject to capital demands.
CAB’s 2015 financial statements showed that about one-third of its revenues came from Summit in Florida. We believe the share from ALIV could become much higher, but any meaningful estimate will only be available when audited figure for June 30 are published in September.
In the meantime, the long-term growth of both CAB and ALIV
should be reflected in CAB’s share price rising from its present $4.00, abysmal for one of our most widely held equities. Individual shareholders who suffered from our two hurricanes had to liquidate and exerted downward pricing pressure. But there are plenty of mutual and pension-funds who could have taken up the slack and supported the price, as well as the 22% shareholder National Insurance Board. All these institutional investors employ or retain sophisticated financial analysts, who should be able to spot a value investment and put in buy orders..
Their inertia is joined by our little community of five licensed broker-dealers. Even the largest, Royal-Fidelity and CFAL, and the ambitious newcomer , Leno, do not appear to issue any analytical reports on local investments or attempt to publicize market movements. Nothing is shown to the largely uneducated public who might become shareholders if professionally advised.
In more mature markets, many companies are recommended for their history of shareholder growth despite a low or no-dividend policy. Prime US examples are Apple and Amazon. Even Tesla, still not recording net income, is a popular investment due to its innovations that are revolutionizing the automobile industry.
Why not in The Bahamas? Why do our investment professionals refuse to
recognize a similar company here?
CAB itself has issued press releases explaining its true financial strength, but to date they appear to have been ignored – or disbelieved – by our financial community. CABLE has the opportunity to give an even more effective presentation with its audited statements for the 18 months ended June 30, and at the subsequent shareholders meeting Government should clarify the CAB-ALIV financial picture by announcing at long last its intentions for selling the holding company that is ALIV’s majority shareholder. A transaction of some $70 million, key for reducing the public debt burden, it overhangs the liquidity of our entire securities market.
An offering to the public? Privately to institutions? At what price? By whom managed? With what information to investors? Regulated by the Securities Commission? Until these questions are answered, Government bears a heavy responsibility for keeping our capital markets on the edge of uncertainty.
Nevertheless, we believe that CAB, bolstered by ALIV, remains an appealing growth investment at the deeply undervalued price of $4.00 per share.
— For disclosure purposes, the author states that he is a shareholder of CAB—
Mr. Coulson has had a long career in law, investment banking and private banking in New York, London, and Nassau, and now serves as director of several financial concerns and as a corporate financial consultant. He has recently released his autobiography, A Corkscrew Life: Adventures of a Travelling Financier.
