Some highlights from a TiVo perspective
We reiterate our Outperform rating and t/p of $32 as we see revenue
growth for VMED accelerating over 2012 and churn trends continuing to
improve. We are 1% ahead of consensus 2012 revenue estimates and 2-
3% ahead of 2013E-14E FCF.
We expect the UK economy in 2012 to be much less of a drag on
consumer spend, incl. pay-TV, than in 2010 and 2011, due to (1) UK
inflationary effects easing on key essentials (food, fuel and clothing); (2) No
VAT increase in 2012 (2.5pp increase in both 2010 and 2011). VMED
should also continue to benefit from rising prices and its improving
broadband mix. VMED reported pay-TV adds (excluding legacy free-TV
subs) of 85,000 in H211, a stronger figure than Sky (66,000 H211) driven, in
our view by TiVo (75% of gross adds in Q4 for VMED).
Q112 expected to be in line with Guidance. Virgin Media has guided very
explicitly on Q1 revenue growth (2% yoy in line with Q411) and EBITDA flat
yoy (£376m). We and consensus are very close to this guidance for the
quarter and we expect VMED to report broadly in line with consensus. For
Q112 KPIs we expect ARPU of £47.0 (consensus £46.8), cable customer
adds of 5,000 (consensus 11,000), Paying TV adds of 3,000 (consensus
12,000) and broadband adds of 35,000 (consensus 35,000). Virgin Media
stated at its FY11 results that Q112 would not be reflective of its FY12
Virgin Media cable churn trends improving. The Cable customer churn
trend in Q4 improved year on year for the first time in 3 quarters.
Churn had been increasing around 10-15bps over the past three quarters but was
actually flat year on year in Q4, in our view, helped by TiVo.
TiVo Subs 600,000 -- increase of 165,000 from the 435,000 present at the end of FY11.