Kabel Deutschland uprated again
September 29, 2010
By Chris Forrester
Investment bank Morgan Stanley has given a further impressive uplift to its target share price for German Kabel Deutschland. In a note to clients Morgan Stanley increases its price target from E31 to a hefty E36. Yesterday’s actual price was E28, but over the past year it has been as low as E19.89. There’s more to come, suggests the bank, especially if the price takes on board the recent growth in Telenet and Virgin Media, both of which have grown by about 30% over the past year.
Morgan Stanley suggests that following Kabel Deutschland’s IPO there is a longer-term Base Case target of E41, and a “Bull Case” of E60, and argues “Cable better than copper: we believe it is a better technology to DSL to provide broadband and TV services, with a cheap upgrade path to 100MBps speeds.”
The bank’s report talks about “a gradual increase in ARPU for KD, high cash conversion driven by a largely fixed cost base with significant operating leverage.” It also talks about 65-70 per cent EBITDA margins and further cooperation with Sky Deutschland.