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Technology Stocks : (LVLT) - Level 3 Communications -- Ignore unavailable to you. Want to Upgrade?

To: kellygreen who wrote (3167)	3/29/2002 10:06:24 AM
From: Freedom Fighter	Read Replies (1) \| Respond to of 3873

Hi kellygreen, I still own a fairly large position in LVLT that is under water. I'd have to write a book to tell you all my thoughts. So I will summarize. I think the company currently has a competitive advantage in some areas of the wholesale telecom market. I also think a reasonable case can be made that its advantage will grow over time and expand to other areas as it upgrades. That potential seems huge to me. There are several issues. A significant portion of the initial customer base was dotcoms and other start up telecoms that ran into funding issues, had poor business models, faced severe competitive pressures etc… So even though the company has a decent portfolio of high quality growing customers now, the losses via BKs are more than offsetting that growth and other new successes. Sequential revenues continue to decline. The company believes that the disconnect issue has just about worked itself out (one more quarter). Another issue is funding, debt, and finances. The company still has a huge war chest of cash and non-core assets that can be put on the block. But even under its own projections it is two years away from reaching free cash flow break even (self-funding). It has a heavy debt load to support in the mean time. According to company projections, it is fully funded with a decent margin of safety. But the company's projections were off by a huge margin in the past and it blew a lot of capital as a result. Rather than making projections of growth etc… I look at the current cash burn and calculate how much time the company has to reach FCFBE. In my estimation it has enough cash/time to meet their stated target date plus some more. It's a capital-intensive business. So from here, the company will be walking a thin line between trying to grow the customer base and trying to conserve cash. In the last several quarters the company really pulled back the horns in an effort to conserve cash. It also made a few deals at very attractive prices that have improved the balance sheet a bit. A good valuation is somewhere between difficult and impossible, but I try nonetheless. I use several variations of replacement cost instead of trying to discount projections of cash flow into the future. That puts my valuation in the 10-15 range. That's an incredibly soft number though because there could be more writedowns of assets coming etc… What you are looking at here is a company with huge potential that is facing enormous risks related to the balance sheet and short term competitive issues in telecom. It's a high risk speculation. Hope that helps Wayne