Liberty Global dips as BofA downgrades on heavy headwinds

Liberty Global (NASDAQ:LBTYA) was 1.5% lower Friday afternoon following a downgrade to Underperform at BofA, which saw some new prospects emerging from the company's strategy update but too many core headwinds remaining.

"Liberty’s strategic update outlined new opportunities to unlock value that are credible, however execution is challenging and unlikely to yield material upside in the near-term, in our view," analyst David Wright wrote in the downgrade.

Potential may be limited in the company's new initiatives he said -- noting that the company's ongoing stock repurchases are challenged by declining "real" cash flows that are set to fall further this year, and that while the All3Media sale is accretive, "upside appears limited."

Meanwhile, spinning its Swiss Sunrise holdings is unlikely to trade on current cash flows, he said.

"We are cautious on prospects for Sunrise cash flows in a competitive market with price discounts continuing to weigh on mobile back book ARPU while SALT takes share in broadband," he wrote.

"More relevant is the risk of fiber overbuild with Swisscom late to build but ambitious and SALT with wholesale access. Sunrise needs to build fiber and/or migrate to wholesale economics," he said, noting that neither of those options are cash flow accretive.

His new sum-of-the-parts valuation on Liberty Global (LBTYA) leads to just $12/share, he said, but a fairer representation of elevated capital expenditures today boosts that price target to $16.30, vs. Friday's $18.25 quote.