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Equity Bottom-Up

Shenandoah Telecommunications Company / Equity Bottom-Up

Shenandoah Telecommunications Company (SHEN US)

<ul>
<li>SHEN reported a narrower than expected operating loss for the second quarter as revenue increased from first quarter levels. </li>
<li>SHEN has started to see an increase in the number of Glo Fiber subscribers as the Company ramps up its fiber buildout</li>
<li>SHEN drew on its credit facility in July and expects to draw additional capital before the end of the year. The return of leverage could lead to a lower valuation.</li>
</ul>


SHEN reported a narrower than expected operating loss for the second quarter as revenue increased from first quarter levels. 
SHEN has started to see an increase in the number of Glo Fiber subscribers as the Company ramps up its fiber buildout
SHEN drew on its credit facility in July and expects to draw additional capital before the end of the year. The return of leverage could lead to a lower valuation.


<ul>
<li>SHEN reported an unexpected loss for the first quarter due to new system upgrades and the cost structure could remain elevated for the next 20 months</li>
<li>SHEN’s revenue is pacing ahead of expectations on higher Glo Fiber subscription numbers. SHEN’s business plan requires additional capital expenditure spending to expand the fiber network for Glo Fiber</li>
<li>The higher expenses in the quarter reflect SHEN implementing upgrades to multiple systems companywide. The new software would save $2 million annually after the 20-month phase-in process is concluded</li>
</ul>


SHEN reported an unexpected loss for the first quarter due to new system upgrades and the cost structure could remain elevated for the next 20 months
SHEN’s revenue is pacing ahead of expectations on higher Glo Fiber subscription numbers. SHEN’s business plan requires additional capital expenditure spending to expand the fiber network for Glo Fiber
The higher expenses in the quarter reflect SHEN implementing upgrades to multiple systems companywide. The new software would save $2 million annually after the 20-month phase-in process is concluded


<ul>
<li>SHEN faces near-term headwinds in its business, coupled with the need to draw on its credit line to support growth, that could result in a lower near-term stock price</li>
<li>SHEN reported fourth quarter results with a balance sheet that no longer carries the cash destined for tax and dividend payments related to its wireless business sale.</li>
<li>SHEN disclosed its auditors advised the Company to changes in its accounting practice concerning expenses for repairing installed fiber lines results in lower profitability</li>
</ul>


SHEN faces near-term headwinds in its business, coupled with the need to draw on its credit line to support growth, that could result in a lower near-term stock price
SHEN reported fourth quarter results with a balance sheet that no longer carries the cash destined for tax and dividend payments related to its wireless business sale.
SHEN disclosed its auditors advised the Company to changes in its accounting practice concerning expenses for repairing installed fiber lines results in lower profitability


SHEN: Overvalued for Near-Term Headwinds, Sell

<ul type="disc"><li>
Shenandoah Telecommunications (SHEN) is putting its focus on fiber to the home and pausing its fixed wireless broadband business after realizing the vast amount of government grant funding available.</li></ul> <ul type="disc"><li>SHEN is not expecting to reach positive free cash flow until 2026, two years later than originally planned, with the focus on growing its subscriber base.</li></ul> <ul type="disc"><li>The growth story is expected to continue over the next few years, but we fear the Street is irrationally valuing the shares based on a balance sheet that dwindles away in the fourth quarter due to a tax payment and in subsequent periods as SHEN invests in its network.</li></ul> <ul type="disc"><li>SHEN narrowed the revenue and adjusted OIBDA range for the remainder of the year. The current pace of additions should support slight increases in revenue and adjusted OIBDA in 2022.</li></ul> <ul type="disc"><li>The capital-intensive nature of SHEN’s business is expected to result in SHEN not reaching free cash flow positive until 2024.</li></ul>


Shenandoah Telecommunications (SHEN) is putting its focus on fiber to the home and pausing its fixed wireless broadband business after realizing the vast amount of government grant funding available. SHEN is not expecting to reach positive free cash flow until 2026, two years later than originally planned, with the focus on growing its subscriber base. The growth story is expected to continue over the next few years, but we fear the Street is irrationally valuing the shares based on a balance sheet that dwindles away in the fourth quarter due to a tax payment and in subsequent periods as SHEN invests in its network. SHEN narrowed the revenue and adjusted OIBDA range for the remainder of the year. The current pace of additions should support slight increases in revenue and adjusted OIBDA in 2022. The capital-intensive nature of SHEN’s business is expected to result in SHEN not reaching free cash flow positive until 2024.

<ul type="disc"><li>With the sale of the wireless business complete, Shenandoah Telecommunications (SHEN) is now squarely in the broadband business. SHEN has been expanding its fiber, Glo Fiber, and fixed wireless broadband service, Beam, in multiple towns.</li></ul> <ul type="disc"><li>Second quarter results showed gradual sequential growth with more Glo Fiber and Beam subscribers. The second quarter was the last time SHEN would recognize net income from its legacy wireless business.</li></ul> <ul type="disc"><li>The cash dividend removes a near-term catalyst for capital return while investors would need to wait for Glo Fiber and Beam to reach scale.</li></ul> <ul type="disc"><li>The capital-intensive nature of SHEN’s business is expected to result in SHEN not reaching free cash flow positive until 2024.</li></ul>

With the sale of the wireless business complete, Shenandoah Telecommunications (SHEN) is now squarely in the broadband business. SHEN has been expanding its fiber, Glo Fiber, and fixed wireless broadband service, Beam, in multiple towns. Second quarter results showed gradual sequential growth with more Glo Fiber and Beam subscribers. The second quarter was the last time SHEN would recognize net income from its legacy wireless business. The cash dividend removes a near-term catalyst for capital return while investors would need to wait for Glo Fiber and Beam to reach scale. The capital-intensive nature of SHEN’s business is expected to result in SHEN not reaching free cash flow positive until 2024.

United States

Shenandoah Telecommunications Company provides telecommunications services through its subsidiaries.  The Company offers integrated, full service telecommunications products and services in the Northern Shenandoah Valley and surrounding areas.  Shenandoah Telecommunications also holds paging and other radio telecommunications licenses.

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