Citi has reinstated coverage of Liberty Global ( NASDAQ: LBTYA ) with a Neutral stance, saying the long-term value of the stock is "clouded" by short-term challenges as well as high leverage.
The valuation may look attractive from a sum-of-the-parts perspective considering its various equity stakes, and it has some record buyback support as well, with $1.7B in repurchases pledged.
"However, with yields on the bonds of its main subsidiaries doubling YTD, this is not a market where we think companies with high leverage and uncertain long-term growth can re-rate," says analyst Georgios Ierodiaconou.
And unless there's a recovery in the high-yield market, Liberty Global's stock will keep tracking the performance of the bonds, making it a high-risk investment even if there's fundamental upside, Ierodiaconou says.
A sum-of-the-parts analysts points to $21 per share fair value (vs. a current $15.98), but Citi thinks a 15% discount is appropriate given uncertainty in the market and the potential further upside risk to rates.
That leads to a target price of $18 per share, implying 13% upside.
For further details see:
Citi restarts Liberty Global at Neutral, with bond risk weighing