TWC forecasts growth on eve of stock issue

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NEW YORK -- Time Warner Cable, the second-largest U.S. cable operator whose shares are expected to start trading Thursday, on Wednesday forecast growth in revenue and operating income before depreciation and amortization above 30% this year.

TWC also signaled that financials and subscriber trends in about half of its recently acquired cable systems should improve this year, while Los Angeles and Dallas systems will need 2007 to stabilize.

In a guidance statement, the company said its 2006 revenue amounted to $11.8 billion and OIBDA came in at $4.2 billion. These figures amounted to 2006 increases of 34% and 27%, respectively.

TWC also projected full-year 2007 free cash flow of $800 million-$1 billion.

The guidance got mixed reviews from Wall Street observers, with some of them saying it is more conservative than they had expected.

In a conference call Wednesday, TWC management signaled that it expects financial improvements in its newly acquired systems this year with the exception of Los Angeles and Dallas.

"L.A. and Dallas will take longer than the other acquired systems," Time Warner Cable CEO Glenn Britt said. CFO John Martin said that in those two markets "2007 will be a stabilization year," adding that management sees "very significant long-term opportunity" there.

The financial position of the recently acquired systems is well weaker than that of the older TWC systems. For example, monthly average revenue per basic cable subscriber in the new systems is $18 below that of the legacy TWC systems, Martin said. Similarly, the reach of high-speed Internet service at 17% is behind the 30% in the existing TWC markets.

Martin also said operating income before depreciation and amortization margins are nearly 10 percentage points lower in the newly acquired systems, with L.A. and Dallas between 5% and 10% lower than the rest of the newly added systems.

The cable firm has been the fastest-growing unit of Time Warner, the world's largest media conglomerate. As part of a deal with Adelphia Communications Corp. and Comcast Corp., TWC has acquired new cable systems and recently became a public company when it got approval for distributing some of its shares to Adelphia creditors.

TWC shares have been trading on a "when- issued" basis since January. TW will continue to control about 84% of TWC.

Pali Research analyst Richard Greenfield in a report Wednesday initiated coverage of TWC shares with a "neutral" rating, arguing there are "better opportunities elsewhere in (the) cable sector."

Investors have been expecting TWC to show "significantly higher than peer group growth in 2007," he said, adding: "We believe growth is likely to be more in line with Comcast and Cablevision. In turn, we do not believe TWC's premium valuation is warranted."

Bear Stearns analyst Spencer Wang in a report said TWC's guidance "albeit conservative was below consensus, but in line with our forecasts."

While Wednesday's conference call mostly focused on margin and other financial trends, one analyst drew laughs when joking about whether management was sure that TWC wanted to be a public company after Tuesday's stock market declines (HR 2/28).

The company's shares will trade under ticker symbol "TWC" on the New York Stock Exchange.
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