market folly

We're posting up notes from the Sohn London conference 2017.  Next up is Christian Vogel-Claussen of Alanda Capital Management who pitched long United Internet (ETR:UTDI).


Christian Vogel-Claussen's Sohn London Presentation

At Alanda half of the investment team are traditional analysts and the other half are in-house programmers. The programmers write data scripts to track publicly available information on the companies. They scrape public data and measure performance indicators that companies do not report.

Long: United Internet (ETR:UTDI)

United Internet is a Mobile Virtual Network Operator; a broadband reseller for internet access; it is also involved in web hosting, selling webpages and web domains.

It was founded by Ralph Dommermuth when he was 24. United went public in 1998. Dommermuth is still the CEO of the business, owning 40%.

In the last six months, United has been involved in two interesting deals. They bought a 72% stake in Drillisch, another player in the mobile market, and they sold a minority stake in their web hosting business to Warburg Pincus.

The Drillisch acquisition will disrupt the German telco landscape. The German market is divided between 3 mobile operators: Telefonica Deutschland (TD) which operates under the brand 02 is the largest player with 45m subscribers; T Mobile; Vodaphone.

In 2014, O2 merged with EPlus to form the largest mobile operator. The merger was only given the go-ahead on the grounds that TD would sell 30% of its capacity. The auction was won by Drillisch. Now that United own 101 and Drillisch - the two most aggressive players – they no longer compete against each other. Instead they are both competing for TD’s market share. In addition, 101 can offer a bundle of mobile and broadband to the entire customer base of Drillisch.

Alanda’s data scrapers have data showing that the churn rate of 101 and Drillisch is now 29% lower than the market average. Even though 101 is the smallest operator it is the most popular destination with churners. They are gaining twice as many new subscribers as TD. This means that the newly merged 101 is gaining market share rapidly - 39% of the churners are leaving TD to go to 101. Vogel-Claussen noted that in effect he was giving the audience a short idea: Telefonica Deutschland. TD have not been able to compete on price, 101 are 25% cheaper.

In the web hosting business, United has sold a one-third stake to Warburg Pincus and they are working together in partnership. They now have the fire power to roll-up the fragmented web hosting business in Europe through acquisitions. United has recently announced the acquisition of Strato, the German N0.2 in web hosting.

United has announced that in the next 18 months it will spin-off its web hosting unit. Web hosters in the US usually sell for 14x EBITDA.

United trades at 10x forward EBITDA. Its revenue growth rate is double digit. Expect a FCF CAGR of 17% over the next few years. Investor’s interests are fully aligned with the 40% owner’s.


Be sure to check out the rest of the presentations from Sohn London 2017.