US DBS leader DirecTV is spending $100 million a week buying in its own shares. As at June 30 it had $3.4 billion of authorised cash available to buy back its shares, and according to ratings agency Fitch, it expects DirecTV’s capital allocation strategy will continue to focus on its share repurchase programme while managing DTVH’s balance sheet to its 2.5x leverage target.
DirecTV’s holding company (DTVH) has debts of $13.5 billion, and Fitch has given DTVH a ‘BBB’ rating on the debt, saying: “Fitch’s expectation for continued generation of free cash flow (before dividends to DirecTV), and the company’s high level of financial flexibility within the existing ratings category. These considerations, along with the company’s 2.5 times (x) long-term leverage target and an operating strategy primarily focused on targeting high-value subscribers and controlling subscriber churn, strongly position the company’s credit profile within the current rating.”
But there’s also a warning: “Video services are a mature product with, in Fitch’s opinion, limited revenue and subscriber growth potential, especially when considering DTVH’s high penetration of subscribers that take advanced video service products. In Fitch’s view DTVH’s ability to innovate its video service to, among other things, establish a path to become more IP-video enabled is critical for the company to maintain its competitive position, grow video ARPU and expand operating margins.”
Fitch’s report continues: “A video service provider’s ability to deliver video content anywhere, anytime, and to any device has become the competitive focus within the multichannel video programming segment. To that end, DTVH’s connected box strategy, while experiencing initial operational difficulties, positions the company to diversify its content delivery platform, and expand video ARPU through enhanced video on demand services. Other company initiatives such as a new HD program guide and its Nomad service (porting content from DVR to tablets) are expected to launch during the fourth quarter of 2011.”