Pivotal Research Group said it is reducing its year-end 2016 target price on Liberty Global from $50 to $41 in part to account for the UK vote to exit the European Union.
The reduction also accounts for the distribution of 117.5 million Liberty Global Latin America and Caribbean (LiLAC) tracking stock shares, Jeffrey Wlodarczak, Pivotal’s principal and senior analyst – media & communications, said in a research note issued Friday.
Liberty Global owns Virgin Media, the largest U.K.-based MSO, as well as cable operations in several other parts of Europe via Ziggo, Unitymedia, Telenet and UPC.
“The broader risk is that Brexit will drive the U.K. (and possibly the EU) into a recession, but we remind investors that LGI provides mostly utility like products at relatively attractive prices and we suspect the EU and the U.K. will be forced to expand stimulus programs around this event,” Wlodarczak noted.
He said he does not expect any change to Liberty Global’s Project Lightning network and service investment/expansion in the U.K. as a result of the Brexit vote.
“Broadly speaking even the most supposedly defensive euro telco stocks have traded poorly in recent weeks around the prospects for Brexit, which we believe is related to concern that there is no realistic place to hide in Europe if the exit of the U.K. leads to further EU destabilization (and potential additional country exits from the EU medium to longer term),” the analyst added, noting that the Brexit vote is considered “advisory,” because the UK will remain in the EU for at least 2 years and could still reach an ultimate deal to stay in.
“However, until the market gains greater certainty about the ultimate effects from a potential Brexit trading in Euro cable/telco names may potentially continue to be choppy and it is likely to continue to be easier to own BUY rated CHTR [Charter Communications] and CMCSA [Comcast].”
Liberty Global was among a large group of distributors and vendors with a focus on Europe to take a hit on the stock market.
-Shares in Arris, a major supplier that became incorporated in the U.K. following its acquisition of Pace in January and is now pushing to spur international growth, were down $1.05 (4.60%) to $21.77 each at last check. Arris's worldwide headquarters remain in Suwanee, Ga.
-Shares in Altice, which just wrapped its acquisition of Cablevision Systems, was down 94 cents (6.29%), to $14.01 each.
-Discovery Communications, which has significant international operations and focus, was down $1.75 (6.64%), to $24.62 per share.
Update: Discovery released this statement regarding the Brexit vote:
"Discovery Communications respects the decision of the U.K. people in this historic vote to leave the European Union. Discovery Channel launched in the U.K. in 1989 and since then it has become one of our biggest markets and a critical creative and business hub. As a global company with a significant presence in 220 markets, we are accustomed to operating in an industry and a world where change is constant. We will work closely with U.K. and E.U. leaders to successfully navigate this change and find new opportunities to shape our future. In the short-term and medium-term, our currency hedging program will significantly minimize the foreign exchange impact of the Brexit vote on our financial performance."
