Numericable CEO Targets Web Users for Growth Ahead of IPO

Numericable SAS, the French cable-TV provider preparing for an initial public offering, plans to appeal to investors by tapping into rising demand for speedier Internet connections.

“Investors are interested in cable operators reinventing themselves through the technology shift to fiber -- markets are fairly open to that right now,” Chief Executive Officer Eric Denoyer said in an interview this week. “The Numericable story is shifting to a growth story, and that’s what we want to take to the market.”

After focusing in the past five years on cost cuts, debt restructuring and integrating acquisitions, the company is upgrading its network to faster fiber technology to jump-start sales growth. Denoyer is betting a better network will help him sell packages of ultra-fast Internet, TV and fixed phone at a premium and challenge rivals such as Orange SA.

Numericable, based in Champs-sur-Marne, France, is set to complete its planned IPO before year-end, according to two people with knowledge of the matter, who asked not to be named because they weren’t authorized to discuss the process. The cable operator, which gave analysts access to its financial information last month as part of the IPO, is seeking an enterprise value, which includes debt, of 4 billion euros ($5.4 billion) to 5 billion euros, one of the people said. The company’s net debt as of June was about 2.8 billion euros.

Sales Forecast

Numericable, which isn’t yet allowed to provide the details of its IPO plans and timetable, has said it will do so in the coming weeks, after it gets French market regulator AMF’s go-ahead. Isabelle Mas, a spokeswoman for the company, declined to comment on details of the sale.

The company forecasts revenue growth of 2 percent to 5 percent a year from 2013 to 2016, with an adjusted margin on earnings before interest, taxes, depreciation and amortization of 50 percent in 2016. Last year, sales shrank 0.3 percent to

1.3 billion euros and the Ebitda margin was 47.6 percent.

Persuading consumers to spend more may prove a challenge for Numericable as France struggles with unemployment at a 14-year high. The cable operator is also up against tough competition from telecommunications rivals, from Orange to discounter Iliad SA, which have shifted focus back to fixed-line services as mobile revenue fades amid price wars.

‘Next Chapter’

“The natural way for us to write the next chapter of our story is the IPO. It will bring liquidity to our shareholders and help finance our growth,” Denoyer said. “It’s a solid investment case, with network assets, good margins and cash flows, as well as strong visibility.”

Last month, Numericable registered a plan to sell shares in an IPO, including a capital increase of 200 million euros to 250 million euros. JPMorgan Chase & Co. and Deutsche Bank AG are managing the share sale, along with banks including HSBC Holdings Plc, Societe Generale SA and Credit Agricole SA.

The cable company’s owners include private-equity firms Carlyle Group LP, Cinven Group Ltd. and Altice.

Numericable, which has 1.7 million subscribers, plans to invest about 375 million euros annually starting next year on renovating and expanding its network. Its network connects to 10 million homes in France, half of which through the faster fiber technology.

France’s former telecommunications monopoly Orange, which also sells packages of fixed-line high speed Internet, phone and TV, had 10 million fixed broadband customers as of June. France’s biggest carrier has said that bundling fixed and mobile into a single bill has helped it fend off competition.

Cable Targets

Cable companies have been pushed to center-stage in Europe as potential targets for telecommunications companies looking to expand in adjacent business without risking being stopped by competition authorities. Vodafone Group Plc is poised to complete its 7.7 billion-euro takeover of Kabel Deutschland Holding AG as early as this month.

Numericable’s peers Kabel Deutschland, Liberty Global Plc, Telenet Group Holding NV and Ziggo NV have an enterprise value, on average, of 4.7 times 2012 sales, according to data compiled by Bloomberg. At 5 billion euros, Numericable would be valued at

3.8 times 2012 sales.

IPO volumes in Europe rose about sixfold last quarter, according to Bloomberg data, as investors resumed buying on strengthening economies and an easing euro debt crisis. Activity is also returning in France’s capital markets, as Numericable joins local companies including Web-advertising company Criteo SA and floor maker Tarkett SA that are planning listings at home and in the U.S. this quarter.

Speed Need

Though the high-speed fixed Internet market is showing little growth in customer numbers -- most households already have a subscription -- the need for increased bandwidth is becoming more pressing. Consumers are connecting more devices on their home Internet network to watch high-definition video, play games with rich graphics and access photos and files stored on remote servers.

Numericable is also betting consumers will pay more for their monthly fixed subscription if their set-top box includes extra services such as YouTube and Twitter.

The need for speed will be helped by a change of technology on wireless networks, as mobile carriers also upgrade their infrastructure to support faster, so-called fourth-generation technology, Denoyer said.

“With 4G, consumers get speeds of tens of megabits per second on their smartphone while walking around in the street,” Denoyer said. “I don’t expect they’ll accept dropping back to a tenth of that when at home on an old connection. They’ll definitely want to upgrade.”

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