Fifty cent USD dividend will be paid on September 11. The record date was July 20(bought some anyway a couple of weeks ago). They pay a dividend semi-annually (twice a year):
Dividend Link: cw.com
Wednesday August 15, 2:28 pm Eastern Time
MotleyFool.com - Fool on the Hill
Fool on the Hill: Is Cable & Wireless a "Fat Pitch"?
By Bill Mann
[This story was changed on Aug. 16 to correct an error in the stated dividend yield.]
It's not often that "Duh!" moments come along in investing.
Well, let me rephrase that: I'm certain that there are countless "Duh, that was stupid" moments every day -- I've contributed a few myself. What I'm talking about today, however, are the moments when a company's stock appears screamingly cheap by nearly any measure.
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But it seems to me that at its current price, voice and data carrier Cable & Wireless (NYSE: CWP - news) may be one such opportunity. It is currently valued well below its book value -- assets minus liabilities and intangible assets -- and has a price-to-earnings ratio of 3. It also has one of the most valuable telecommunications infrastructure assets in the world.
Yes, I said telecommunications. Please don't scream so loudly!
Obviously the telecommunications sector -- from fiber optics to broadband, wireless, and voice -- has been brutalized over the last year or so. Where we once counted on these companies to change the way the world communicated, transacted business, and entertained itself, we are now seemingly counting bodies. The telecommunications carriers of the world have, combined, amassed more than $600 billion in debt trying to build out a new communications network, and I don't think it's too much of a stretch to say that this amount of debt requires some big cash generation to make it worthwhile -- and that didn't happen.
But the part about changing the world sure has come to pass. It just didn't happen as quickly or as profitably as people imagined. (For more on the telecommunications business, visit our InDepth area on the subject.)
Invest in the inevitable
Does that mean that the original premise was wrong? Not at all. In fact, once the environment improves enough for sufficient end users to gain access to true broadband, the hypergrowth we all believed was inevitable will be just that. So while the poorly capitalized me-too companies that tried to jump onto the broadband gravy train get wiped away, the strong will survive and, I believe, prosper.
Cable & Wireless is, in my estimation, among the strongest of them all. But as a telecommunications company, its stock has dropped right along with the rest of the sector. It seems where everyone saw promise a year ago, now all we see is risk. And this is sure a risky, nasty sector, but those companies that retain option value will thrive. The option that is most valued right now is cash, of which Cable & Wireless has gobs -- so much so, in fact, that I believe its cash puts a hard floor on how low its stock can go.
At its current price of $14.60 a share, Cable & Wireless carries a market cap of $13.9 billion. This, as I mentioned earlier, is significantly lower than its book value. This essentially means investors expect C&W's operations to destroy, rather than create, capital.
Given the recent history of telecommunications carriers, this pessimism seems to have its place. But C&W generated more than $1.8 billion in cash from operations in fiscal 2001 (ended March 31), one of the worst operating environments in years for telecommunications firms. Simply put, this is not a company that is eating through its coffers in order to remain in business.
And what coffers they are. As of March 31, the company's liquid assets broke down as follows: (All numbers in billions of dollars.)
Cash & Short Term
Deposits $7.01B*
Investments $3.42
Less Current Debt (primarily trade payables)
$5.99-------------------------------------------
TOTAL $4.44*Figures US$ at a conversion
rate of £1=$1.42.
But wait, there's more. C&W announced in March that it was selling its 52% stake in Australian carrier Optus to Singapore Telecom, which would add some $3.8 billion in cash and allow C&W to remove a further $1.7 billion of debt from its balance sheet. This deal is expected to close within the next few months, at which time C&W will have another $5.5 billion in liquid assets at its behest, for a total of $10 billion.
C&W has already put a small amount of that cash to work, picking up managed Internet services company Digital Island (Nasdaq: ISLD - news) for $340 million in cash.
The remainder -- something in the neighborhood of $9.6 billion -- is sitting on Cable & Wireless' books. This means that the remainder of the company is being valued at a hair over $4 billion. The question, then, becomes: Is all of Cable & Wireless worth $4 billion?
For me, that question was answered above in the section discussing the company's $1.8 billion in cash operating profit last fiscal year. Cable & Wireless has been wracked by restructuring, asset churn, and a rapidly changing business model that required some significant capital expenditures. Its free cash flow was also deeply impacted by its purchase of the data assets of MCI following that company's merger with WorldCom (Nasdaq: WCOM - news). But the company is now left with a network that spans 70 countries, maintains one of the three largest Internet backbones in the world, carries more than 28% of all daily Internet traffic, and is currently among the only companies that is aggressively optimizing large portions of its network for data transport.
Even in the United States, a major market for Cable & Wireless and among the most wired countries, only about 7% of all consumers have broadband access. The reasons are myriad, but until broadband availability expands, our earlier expectations for a massive return on investment in this sector will continue to appear overblown. But is there any doubt that the Internet has reached critical mass? Those companies that have the financial and technological ability to wait out the lull and continue to build out their networks in a strategic fashion will be in place when the floodgates do open again.
But there's more...
I know of no other communications company that has the financial standing of Cable & Wireless. Perhaps it got lucky selling off two low-growth assets right at the high point of the telecommunications valuation bubble, perhaps not. Either way, the company is extremely well-positioned to participate in a market that is certain to grow. And given its balance sheet and depressed market value, there may not be a lower-risk company in the entire sector.
Two last notables: I haven't even touched upon the fact that the dollar is extremely strong at present. Any weakening would necessarily be of benefit to Cable & Wireless holders, since the company is denominated, and conducts much of its business, in pounds sterling. Further, the company evidently thinks its stock is cheap as well: It recently approved an initiative to repurchase up to 15% of the total outstanding shares.
Oh! In case you needed one more piece of data to chew on, Cable & Wireless pays a dividend of $0.77 per share. At last count, that was a yield in excess of 5%.
Seriously, I must be missing something.
Fiat Fool!
Bill Mann, TMFOtter on the Fool Discussion Boards
Bill Mann is building a superconductor in his backyard. At time of publishing, he held beneficial interest in Cable & Wireless. The Motley Fool is investors writing for investors. |
