Moody’s: Cable Cash Flow Growth Will Slow, But Margins to Remain Strong

Credit-rating agency Moody’s Investors Service predicted that cash flow growth for the cable sector will slow to about 4.2%, with no major M&A deals to boost results, but cash flow margins are expected to remain strong and steady at 39% over the next 12-to-18 months.

According to Moody’s, cash flow growth has slowed from about 5.2% last year without M&A synergies compared to 2017, when three major deals – valued at $126 billion – created billions of dollars in cost-saving opportunities.

“While our forecast does not have any material assumptions for acquisition synergies, we believe further consolidation could provide new support to our EBITDA forecasts,” Moody’s vice president and senior credit officer Jason Cuomo wrote in a research report.

Cuomo added that Comcast’s $40 billion purchase of British satellite company Sky is unlikely to alter U.S. operating metrics, but Sky, with a healthier video business than most US operators, could improve Comcast’s overall operating metrics.

Broadband subscriptions are expected to continue to show strength – Moody’s estimated that high-speed data subscribers grew at 3.1 times video customers losses in Q2.

That is down considerably from the prior year, when broadband gains were 6.2 times video losses, and according to Moody’s the latest measurement was the lowest in the past 5 years.

“We expect this rate to continue falling over the next 12-18 months, but at a slower rate and not below 2 [times],” Cuomo said in the report, adding that broadband growth will remain in the mid-single-digit percentage range, with video losses in the low-single-digits.

“Based on the current gap between the prices and profits of broadband and video, we expect lost video subs to be replaced by new broadband subs at a rate of 2 [times] or more to produce positive growth in both revenue and EBITDA,” Cuomo wrote.

Moody’s said the cable sector lost about 2% of its video subscribers over the past 12 months ended June 30, while broadband customers rose 4.6%. Voice customers fell by 1.5% over the same period. Moody’s predicts that trends will be similar during the next 12-18 months adding that much of the EBITDA growth over the period will be fueled by broadband.