Citi Highlights A Couple 'Unique Figures' Driving Charter's Growth Story

The acquisition by Charter Communications Inc CHTR of Time Warner Cable Inc TWC and Bright House offers investors “a unique opportunity,” Citi’s Jason B Bazinet said in a report.

Terming Charter as a unique growth story, analyst Jason Bazinet said that it was led by two unique figures – Operations would be overseen by Tom Rutledge, “one of the most astute operators in the industry” and the capital structure would likely be influenced by Dr. John Malone, “who uses levered equity returns to enhance returns.”

Related Link: Morgan Stanley Overweight Charter, Sees +35% Of Market Cap To Be Bought Back

Bazinet noted that Tom Rutledge had performed “small miracles” at Cablevision Systems Corporation CVC and would now be applying his skills to 48 million homes. Dr. Malone, chairman of Liberty Media Group LMCA, now has more than a 25 percent voting stake in the second largest US cable firm.

Closing The Gap

“Our favorite cable metric is EBITDA less capex per home passed or unlevered FCF (UFCF),” Bazinet wrote. The monthly UFCF of Comcast Corporation CMCSA stood at $18 in 2015, about $7 higher than Charter. Over the next four years, this gap is expected to narrow to ~$1.

The analyst expects the drivers of closing the gap to include:

• Programming synergies of $1.3 billion
• Cost synergies of $0.4 billion
• Operational improvements of $1.5 billion

Maintained a Buy rating for Charter, while raising the price target from $220 to $270.