The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Cable Bahamas yesterday disclosed it is targeting a 14 per cent compound annual growth rate (CAGR) in earnings before taxation over the next five years - a goal that excludes potential benefits from its stake in the nation’s second mobile provider.

Barry Williams, Cable Bahamas’ chief financial officer, said in a statement issued last night that the company is seeking 9 per cent revenue growth over the same period to 2020, as it moves to deliver greater shareholder returns from newly-opened growth opportunities.

The BISX-listed communications provider is also expanding its capital raising into the Caribbean by seeking 40 per cent of its latest $50 million preference share issue from regional investors beyond the Bahamas’ borders.

Moving rapidly to capitalise on the issuance of the second mobile licence to NewCo2015 Ltd, Cable Bahamas has engaged Scotiabank (Bahamas) and its affiliate, Scotia Investments Jamaica to raise $20 million in US dollar financing.

The preference share issue launches today, with RoyalFidelity Merchant Bank & Trust seeking to raise the $30 million balance ($20 million in Bahamian dollars, $10 million in US dollars) in the local capital markets.

Tribune Business exclusively revealed the RoyalFidelity portion of the preference share capital raising last month, with the timing of the offering’s launch directly linked to the awarding of NewCo2015’s licence.

Cable Bahamas likely elected to broaden its capital horizons beyond the Bahamas because of the relatively limited appetite for, and difficulty in accessing, US dollar investments.

The US dollar denominated component in some of its previous preference share offerings has been less than fully subscribed, and in seeking access to a broader investor pool, Cable Bahamas also has the opportunity to gain ‘brand recognition’ regionally.

The $50 million preference share proceeds will be listed on the Bahamas International Securities Exchange (BISX) and used to finance Cable Bahamas’ capital expenditures, and expansion opportunities, in both the Bahamas and US.

Targeted investors will be given a special presentation on the company’s plans this evening, although members of the public should not seek to become involved as it is not a public offering.

Mr Williams, meanwhile, said Cable Bahamas was poised for strong top-line and earnings before interest, taxation, depreciation, and amortisation (EBITDA) growth over the next five years event even without the potential profit streams likely to be delivered by NewCo 2015.

“We expect the wireless services opportunities and growth of our Florida business to drive CAGR of 9 per cent in revenues and 14 per cent in EBITDA over the next five years in Cable Bahamas,” Mr Williams said.

“In addition, we expect further shareholder value growth from our 48.25 per cent equity stake in NewCo, which will enter the $215 million domestic and visitor roaming mobile revenue market, later this year.”

Cable Bahamas’ own financial projections, which exclude NewCo’s direct impact, show its revenues increasing by 14 per cent or $25 million year-over-year between 2016 and 2017, rising to $210 million.

Although the annual growth rate slows down to 7-8 per cent over the next three years, Cable Bahamas is forecasting that total revenues (minus NewCo2015) will hit $258 million by 2020, a $73 million or 39.5 per cent rise over five years.

As for EBITDA, Cable Bahamas is projecting a 24 per cent surge between 2016 and 2017, with this figure increasing from $60 million to $74 million.

While the EBITDA growth rates also taper off to between 8-13 per cent over the next three years, it is projected to hit $101 million by 2020- a 68.33 per cent rise.

The offering document for the $50 million preference share issue shows how Cable Bahamas shareholders have two ways to obtain increased value from their investment via the NewCo2015 licence win.

Besides the potential dividends and profits that will flow ‘upstream’ to them from Cable Bahamas’ 48.25 per cent stake in the second mobile operator, the BISX-listed provider’s shareholders will also enjoy income streams generated by the services it will provide to NewCo2015.

Mr Williams’ statement alludes to this, in which he says: “We are now uniquely placed right here in the Bahamas through Cable Bahamas’ investment in NewCo, Cable Bahamas’ provision of critical wireless infrastructure services to NewCo under a Managed Services Agreement, and through growing our world class Florida fibre-to-the-premises business, to drive such revenue and EBITDA growth.”

Cable Bahamas, which has Board and management control at NewCo2015, will thus also be earning management fees and other income from providing services to the second mobile provider.

The latter will also be paying rental and other fees to use Cable Bahamas’ tower and fibre-optic infrastructure to carry its voice and data traffic, ensuring the BISX-listed provider earns money on the ‘top line’ as well as the ‘bottom’ via its NewCo2015 investment and licence win.

The potential benefits from services provided to NewCo2015 are shown in the preference share offering document under the heading ‘wireless’.

Revenues from this segment are projected to jump more than five-fold between 2016 and 2020, growing from $5 million to $27 million, with its EBITDA moving from an initial $0.3 million loss to $19 million (positive) in 2020.

“The foregoing..... represents contracted revenues payable to Cable Bahamas from NewCo, and does not represent it’s 48.75 per cent ownership stake nor NewCo revenues and EBITDA,” the Cable Bahamas offering document said.

“As US operations stabilise and NewCo ramps up, Cable’s revenues and EBITDA can be expected to strengthen the balance sheet and bring cash flow and capital ratios to within the company’s more traditional levels.”

Cable Bahamas acknowledged that the preference share issue would impact its leverage or ‘gearing’ ratio, and forecast that debt-to-EBITDA would be 5.81 times’ and 4.66 times’, respectively, at year ends 2016 and 2017. These, though, would be quickly reduced as NewCo2015 “ramped up” and debt was paid down.

Cable Bahamas is planning to treat NewCo2015 as an independent company for accounting purposes, rather than consolidate the second mobile operator into its own figures.

It acknowledged that NewCo 2015 would require “substantial investment” to take it through the first three years of its start-up phase, but added that the necessary funding had been secured from itself and fellow shareholder HoldingCo (the Government), plus its network vendor, to finance the build-out and launch.

Cable Bahamas reiterated that second entrants to Caribbean and Latin American mobile markets over the past decade typically gained between 27-51 per cent market share within the first three years.

“The level of EBITDA NewCo achieves in three to five years’ time will ultimately determine the value of Cable Bahamas’ investment in NewCo,” Cable Bahamas said last night.

“Publicly available information from Digicel’s SEC filings in 2015 show that they have achieved typical EBITDA margins in the 32 per cent to 60 per cent range in markets where they entered as the second cellular operator.”

Anthony Butler, Cable Bahamas’ president and chief executive, said: “Cable Bahamas has continued to grow since it acquired four Florida-based metro fibre and communications companies in 2013.

“Through securing the second cellular license we now have further opportunity here in the Bahamas to accelerate that growth and secure our position of being the communications provider of choice for the country.

“Across the world today there are only a handful of similar cellular licenses available, and so our investment in NewCo provides our investors with a unique and compelling opportunity, we believe, not to be missed.”