Jefferies Updates Its Estimates, PT On Virgin Media

Virgin Media's VMED upgrades through 2009 and 2010 were driven by successive price increases. Our analysis of tariff changes in the last 3 years shows that Cable ARPU growth of 3.9%/5.8% in 2009/10 were 87%/74% attributable to price hikes. From 2011, VMED can rely less price and must instead deliver stronger up-sell momentum. Jefferies Group targets also become more reliant on the potential of Business/Mobile. In part this is the inevitable consequence of more moderate price hikes. But VMED is also having to invest more broaden its base of growth drivers, notably ramped up Mobile SAC spend and upward capex creep: 15.5% pro forma revs in 2009, 16.1% in 2010, now guided at high end of 15-17% in 2011E due to higher CPE. Given what remains a defensive business offering strong EFCF growth, Jefferies believes that VMED warrants a multiple between the telco large caps and the wider market. Jefferies has a $33.50 PT and Buy rating on VMED VMED closed Friday at $28.27