Ziggo - Priced for Perfection - Initiation
All,
Please find our updated analysis on Ziggo here.
Note: Beta testers can check Ziggo on the portal here.
Ziggo is winning back customers, but not yet earnings or cash. In Q2 26, broadband returned to positive net adds (+7,200, the best in over six years), yet Adj. EBITDA fell 7.6% to €404.5m and H1 Adj. FCF was –€75m. Liberty Global now owns the business outright after buying out Vodafone in August. Covenant net leverage is 5.2x on the reported basis but 6.1x including €1.0bn of vendor financing, and the unsecured notes sit behind €8.8bn of senior claims. At 63.7 (15.6% YTM), the 6.125% SUN 2032s are priced for the listing going ahead, with little allowance for the downside, while the SSNs are close to fair value. We are waiting for Q3 results before taking a concrete view.
Investment Rationale
We are not taking a position in Ziggo. Both the SSNs and the SUNs trade above our fair values, the SSNs by a few points and the SUNs by more than ten. That isn't enough on its own to justify either a long or a short. The outcome for both layers depends less on how the business performs than on how Liberty Global chooses to deal with the 2029–30 maturities, and that decision isn't visible yet.
Q3 results on 2 November should show whether Ziggo is sticking to its plan. On current numbers, we think the listing remains the most likely outcome, which is why we are not short today, even though the SUNs trade around 9pts above our value. If capex doesn't step down as DOCSIS 4.0 completes, cash generation falls short of recent quarters, or disposal proceeds are held back or sent upstream instead of repaying Bank Group debt, the odds shift towards a de-rating or priming. That would take the SUNs from 64 to around 50, or to around 25 in a priming LME, and the case would strengthen further if the listing were delayed or Liberty Global moved towards using its debt baskets. Until then, the risk to a short is the plan going ahead, which would cost 5 to 20pts plus the coupon. If Q3 confirms the plan, we would look at a long in the € 2033 SSNs, which avoid the currency drag on the $ notes. They would gain up to around 10pts if the listing and refinancing go ahead and would hold close to today's price in a VMO2-style de-rating. At around 5pts above our probability-weighted value, though, they need clearly good results before they are worth owning.
Key Conclusions
Covenant leverage overstates how much progress Ziggo is making. Reported net leverage falls from 5.2x today to 4.7x by the end of 2027 and 4.2x by 2029, but almost all of that comes from the tower sale and EBITDA stabilising rather than from debt being repaid. Including the vendor financing that the covenants leave out, leverage starts at 6.1x and is still close to 5x at the end of the forecast.
Management's 4.5x target for Ziggo Group looks difficult on the levers it has named. Even with Telenet, the group remains around 5x by 2028 on EBITDA and cash build alone. The remaining disposals and the synergies bring it down to around 4.7x, still short of the target, and the gap would have to be closed by further asset sales, more synergies than management has quantified, or an LME.
The operating trend has improved, but not by enough to change the balance sheet. Broadband returned to net adds in Q2 and postpaid had its best quarter since 2023. Those customers are being won on price, though EBITDA is still falling, and very little cash is left after interest to reduce debt. The wider sector offers no comfort either: European telecom credits are being re-priced, and Altice France's restructuring and the pressure on VMO2 show how quickly sponsors turn to creditors when leverage stops falling.
The SSNs hold up better but are not as safe as their ranking suggests; vendor financing ranks first in practice, because vendors will keep supplying only if they are paid, and any new priming debt would share the SSNs' collateral. In the weaker outcomes, they fall to around 50, which puts their value in the mid-70s.
Happy to discuss,
Eashan
E: ekapoor@sarria.co.uk
T: +44 203 744 7055