Virgin Media Delivers First Profit

Published in Company Comment on 8 February 2012

The quad-play operator is generating plenty of cash from enthusiastic customers.

Television, broadband, telephone and mobile company Virgin Media (LSE: VMED) has delivered its first annual profit, managing a net income of £77.1m on revenues of £4.0bn in 2011.

Earnings per share were 24p, placing the company on a somewhat heady price-to-earnings (P/E) ratio of 55, with a dividend yield for 2011 of 0.7%.

Customers who want more

According to Neil Berkett, Virgin Media's CEO, "focusing on customers who want more from the digital world is paying off".

What this means is that Virgin's main emphasis at the moment is on maximising revenue from existing customers. This focus saw the number of customers subscribing to its TiVo service more than double to 435,000 in Q4, while the number of paying TV customers also rose by 56,100; Virgin Media's base television package is free.

On the broadband side, 133,000 customers (new and existing) signed up to Virgin Media's superfast broadband service in Q4 2011.

Speeds up, prices up

One of Virgin Media's main selling points is the speed of its cable network. It currently offers the fastest broadband services in the UK, with speeds of up to 120Mbps. Virgin is continuing to expand availability of its superfast service and recently announced that it is now available to ten million UK homes.

Originally, the company said there would be no extra cost for this, but it has since announced that some broadband and telephone charges will rise from 1 April, resulting in an average increase of £2.68 per month for customers.

Virgin versus the competition

Virgin may be winning the broadband speed wars, but Sky (LSE: BSY) has twice as many television customers (10m versus 5m) and BT (LSE: BT-A) has more broadband customers (6m versus 4.3m).

BT's Infinity fast broadband service will eventually reach more homes than Virgin Media's cable network, and will shortly double in speed, taking it close to Virgin's offering. Sky is now offering BT's fibre broadband service to its customers and BT's nascent subscription television service offers much the same content as Virgin Media.

Is it a sound investment?

You do not need a very long memory to remember what happened to Virgin Media's debt-laden ancestors, NTL and Telewest. Virgin Media's current debt is £5.8bn and its interest payments in 2011 amounted to £440.8m -- not far off the company's total operating income of £540.2m.

Virgin Media's first annual profit and improved cashflow are obviously good news, but for me, a company with this much debt, a P/E of 55 and a yield of 0.7% is pure speculation -- not an investment.

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Comments

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theRealGrinch 08 Feb 2012 , 1:58pm
eccyman 08 Feb 2012 , 4:40pm

The Virgin group makes extensive use of tax havens, yet they're seen as the good guys. While UK based Vodafone is seen as a baddy...funny old world.

goodlifer 09 Feb 2012 , 8:43am

"Virgin Media (LSE: VMED) has delivered its first annual profit."

If Digital Look are to be believed, VMED is only available on Nasdaq.
Who's right?

sopavest 09 Feb 2012 , 11:03am

@goodlifer

This confused me too when I was looking for company info for this article.

Virgin Media's primary listing is on Nasdaq but it's also available on the LSE. I am not sure why this isn't reflected on Digital Look, but it's clear on VM's own website, where you can choose between Nasdaq and LSE listings:

http://investors.virginmedia.com/phoenix.zhtml?c=135485&p=irol-stockquotechart

Cheers, Roland (article author)

goodlifer 09 Feb 2012 , 5:38pm

Many thanks, sopavest.

One lives and learns.
Hopefully!

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