Tele Columbus - Reality - Model Update
All,
Please find our updated analysis here.
Tele Columbus needs to restructure its balance sheet. The amount of cash needed to fulfil its capex plan is modest, but the company will never grow into its current capital structure. Reality has bitten hard since the 2024 restructuring, and the only way forward is the equitisation of much of the debt. €100m - €150m of cash is needed, and whilst some of that will come from the sale of an asset in Magdeburg, it is pointless for the existing equity holders to provide it when the balance sheet is so far underwater. We expect a proposal soon, as fresh cash will be needed by Q3 2026.
Investment Discussion
- We are not taking a position in Tele Columbus yet, as the bonds are trading close to fair value and we think they will fall ahead of a restructuring later in 2026. In terms of a short position, the borrow is likely too expensive now.
- Tele Columbus needs to reschedule its bonds, which are trading at around 65c/€, approximating fair value, but there is likely to be volatility during the restructuring (Q3). Our Recap table points to potential equity upside, but this will take time to realise.
- The funding gap is now €100m, €50m of fresh cash and €50m from the sale of the Magdeburg subscribers. The fresh cash will be required by Q3 26.
- Raising cash on the Network (which has been separated) is feasible, but the level of debt is too high to make this a viable way of filling the gap, even if an LME is attempted. We see an infrastructure deal as marginal, given that the network is still mainly HFC.
- At the current price of 65c/€, there are 10 points of downside once a restructuring is proposed, but we would expect the bonds to trade back to the fair value. There is upside in our projections if Fibre take up moves ahead of our expectations.
- So far, TV subscribers have fallen faster than the company guided, and internet additions have been slower than expected, and higher-than-anticipated Subscriber Acquisition costs, => cash is low.
- We will review our model and cash flow requirements again either at the Q2 2026 stage or when a restructuring proposal is announced. A debt Equity swap is inevitable given the debt load.
Key Conclusions
- As our Current Trading and model highlight, there is a funding gap for Tele Columbus. Our DCF section further highlights that the company is overleveraged and a debt/equity swap is inevitable.
- Our model demonstrates that despite upgrading the networks, customers are not yet signing up for internet services. We have increased our prediction here, but a deleveraging transaction is needed.
- Our recapitalisation section shows that the largest challenge facing Tele Columbus is over-leverage. We forecast that creditors will take 90% of the equity in return for a 43% haircut and the provision of the €50m additional money.
- Tele Columbus will not be in a position to refinance in the market in 2031 unless the balance sheet issues are dealt with now.
- The DCF EBITDA multiple is 6.1x; we acknowledge that the potential growth from Tele Columbus could attract a higher multiple from a strategic buyer, but we are sceptical.
- We are forecasting an improvement in ARPU and RGUs from customer uptake, but our Model has this being delivered beyond 2028.
- Our Model forecasts a funding gap of €100m of cash needed, and balance sheet cash running out by Q3 2026.
Recent Trading
Q1 26
The results were in line with our expectations in Revenue; EBITDA was higher as the company reduced marketing expenses in the Quarter. The bondholders and the company have appointed advisors, as with the mid-May cash of €108m, Tele Columbus will need to raise further cash by Q3. The sale of the network in Magdeburg is expected to net €40m - €50m for the company, but we forecast that €100m of cash is needed. An LME involving the network could raise some liquidity, but it is not likely to be sufficient to avoid needing to agree a deal with the SSNs and the Term Loan holders. The company has announced a significant cost-cutting programme, but we expect much of the savings will need to be recycled into marketing costs to keep the RGUs ticking up
- Internet adds were 4k in the quarter to 746k, this is well beneath where the company had projected at the time of the previous restructuring, but is in line with what we had expected. As fibre is pushed further into the network, we are increasing our assumptions as to take up and ARPU, but it will take time and will require more money.
- TV Access RGUs were stable, with individual access falls in Q1 broadly balanced by bulk access increases. A price increase in Q1 led to a 10k fall in Premium TV subscribers to 469.
- YoY Network infrastructure capex has fallen from €13.5m to €6m as Tele Columbus tries to preserve cash; this is not sustainable long term. We have cut our assumption from 50% to 40%, upgraded from HFC to FTTH/FTTC by 2031.
Q4 25
- The 2025 FY results are in line with our forecasts, which we believe were lower than market expectations. As a result, the bonds will be a little softer today, but not much. Looking ahead, the Co-op agreement with bondholders and the Q1 numbers coming out on 29th May mean that the Q4 numbers will soon be superseded. However, Tele Columbus’ plan to roll out fibre to retain and win new customers is clearly not yielding the desired results. Meanwhile, discussions with creditors about a possible restructure are ongoing, but we are unlikely to hear much until after the Q1 results next week.
- Revenue of €426m was 4% below, while reported EBITDA was in line at €139m, reflecting lower restructuring costs and mix (more internet); consequently, this flowed through to OCF of €122m (€124m forecast). Additionally, capex was €30m below our expectations (as the company slowed its rollout), resulting in year-end cash on hand of €72m vs our expectation of €36m. In terms of operating figures, TV RGUs were 9% below our forecast at 1.51m, which was largely due to Premium TV RGUs being 100k lower than expected (0.58m). By contrast, Internet and Telephony RGUs were in line at 1.31m. Although the infrastructure is being rolled out, customers are not biting.
I look forward to discussing this with you all,
Aengus
T: +44 203 744 7055