Virgin Media Inc.VMED

Morningstar Rating

Stock Research and Analysis

by Allan C. Nichols, CFA

We are pleased to see Virgin Media focus on the high-speed Internet access business, an area where we believe its network provides a clear competitive advantage. While its debt load remains formidable, it has successfully refinanced near-term debt.

While Read more

Bulls Say

The NTL-Telewest merger consolidated the U.K. cable industry, allowing for combining best practices from each company.

Virgin renegotiated its senior credit facility with most of its lenders, which should allow the firm to meet all of its financial obligations through 2011.

The predecessor firms were two of the few to offer and then successfully enroll customers in the triple play of cable, fixed-line telephone, and high-speed Internet access. The Virgin Wireless acquisition adds a fourth option of wireless service.

Virgin's carrier business provides steady cash flow from transporting other communication companies' services.

The firm recently re-signed carriage agreements with BSkyB, which will bring back several Sky channels--that have been sorely missed--to Virgin customers as well as provide some of Virgin's channels to BSkyB. Read more

Bears Say

Competition in the U.K. is very tough. In addition, the cable companies' past bankruptcies could cause potential customers to look elsewhere for service.

Cable television never seems able to reach the nirvana of having the network completely built. If the network reaches full capacity, it would allow for huge amounts of free cash flow to be generated, as capital expenditures would mostly disappear.

The firm's return on investment is below its weighted average cost of capital.

Management could decide to return to a debt-laden acquisition and growth strategy that spirals Virgin back into financial trouble. The mergers with Telewest and Virgin Wireless releveraged the balance sheet. The firm also made an unsuccessful bid for ITV, a U.K. media firm. Read more

Strategy

The firm plans to increase its penetration rate and offer more services to existing customers. The ultimate goal is to have the famed quadruple play--cable, high-speed Internet, and fixed and wireless Read more

Management

Management continues to be in flux. James Mooney remains chairman; he was formerly COO of Nextel S. Stephen Burch, who was brought in as the new CEO with such fanfare in 2006, has left. Former COO Neil Berkett was named the permanent CEO in March 2008. Read more

Profile

Virgin now has about 99% of the United Kingdom cable TV market. It passes 12.6 million homes and provides services to 38% of them. It has 3.7 million cable customers, 3. Read more

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