National metro operator abvt said today that its board of directors has authorized a share buyback program of up to $200M throuh the end of next year. It’s not as if they aren’t *trying* to spend it all on expansions of course, since they’ve been averaging capex of more than 30% of revenue for some time now.
The question of what to do with all your extra free cash flow is not a bad one to have, although with all the M&A over the past two years you might think they’ve other places to put it than shares. But of the three public national competitive fiber operators with positive earnings (tw telecom, Cogent, and AboveNet), none has spend money on M&A in that time and all three are now buying back shares – and lots of them. The private equity guys have been paying higher multiples, leaving these three with a difficult case to make for inorganic expansion.
Obviously, they believe the market is undervaluing their potential, and I can’t say I disagree. At some point though, each of these three companies will find the right asset out there for the right price, and pounce on it.
If you haven't already, please take our Reader Survey! Just 3 questions to help us better understand who is reading Telecom Ramblings so we can serve you better!
Categories: Financials · Metro fiber
Join Our LinkedIn Group
Do you believe if these three don’t grow thru M&A there is a potential they will get passed by the more aggressive companies when and if there businesses meet there targets. My example is Level 3, aggressive, losing money, but if they are successful do they start winning and punishing these three for there complacency. Zayo again newere entry into space with agressive plan fo they start winning and hurting the 3.
The problem with buy-backs is when after the buy-backs they load Execs up with options … self-serving and not in the shareholders interests.
A buyback also says we (management) can’t find better returns of investing this cash in our own business … then something is wrong.
Lastly, forget the buyback … reward share owners with a dividend.
Wrong. Better for investors to reap the gains tax free than get hit with a tax on the dividend. Besides, ABVT already payed a special dividend.
@Andrew – Do you trust the capital allocation decisions of mgmt? Are you talking ABVT or all mgmt?
I’d *much* rather have the dividend in my pocket and pay the nominal tax than see a buyback. As noted above by @Interesting, stock is typically bought back and then handed out to mgmt as ESOs w/no reduction in share count. How does that benefit passive shareholders? Trick question, it doesn’t.