In a call with investors after publishing its second-quarter results on Thursday, the parent company of Virgin Media, Liberty Global (NASDAQ:LBTYA), said the broadband operator added superfast connections to 118,000 UK premises in the period.
However, Liberty said the pace of Virgin Media’s network expansion would not accelerate going forward.
Numis reiterates 'buy' rating on BT
“This contrasts with what LBTY (Liberty Global) said only three months ago and it signals that VMED (Virgin Media) has curtailed its network expansion plan,” Numis said.
“In turn, this is a meaningful positive development for BT's investment proposition; we reiterate our ‘buy’ recommendation and our discounted cash flow-based target price of 325p per share.”
BT’s network division Openreach plans to upgrade the UK’s broadband infrastructure by replacing ageing copper lines with superfast fibre optics. The aim is to bring superfast broadband to three million premises by 2020.
Virgin Media’s so-called ‘Project Lightning’, announced in February 2015, is targeting four million premises by 2020. In the first quarter, it brought superfast lightning connections to 111,000 properties, blaming the slow pace on heavy snowfall and shorter winter days.
Liberty said the additional 118,000 was a “steady pace” that is “going to continue”.
Doubts on Virgin Media hitting target
Asked if Lightning's target of four million premises still stands, Liberty’s chief executive, Mike Fries, said: "I am not going to give you long-term guidance whether it's three million or four million, except to say as long as you're getting good returns, it's smart use of capital.”
Since first announcing the programme, Virgin Media has built the network to 1.3mln premises.
Numis noted that Virgin Media’s build costs per property increased in the second quarter to £615-620 from the £575mln quoted in the third quarter of 2017.
The broker said its additional conclusion were: “(i) VMED has curtailed Project Lightning in spite of Ofcom and government actions and further plans to incentivise more investment in all-fibre infrastructure; (ii) the possibility to share ducts and poles with, say, TalkTalk/Infracapital did not dissuade VMED from curtailing Project Lightning; (iii) VMED does not feel the need to accelerate network build-out to mitigate the threat from all-fibre AltNets.”