GTT - Valens Credit Report - 2019 06 05
Credit markets are grossly overstating credit risk, with a cash bond YTW of 12.010%, relative to an Intrinsic YTW of 6.900% and an Intrinsic CDS of 484bps. Furthermore, Moody's is overstating the firm's fundamental credit risk, with their highly speculative B2 credit rating four notches lower than Valens' XO- (Ba1) credit ratingIncentives Dictate Behaviorâ„¢ analysis highlights positive signals for creditors. Specifically, GTT's compensation metrics should focus management on all three value drivers: asset efficiency, margins, and top-line growth, leading to Uniform ROA expansion and increased cash flows available to service obligations. In addition, most management members are material owners of GTT equity relative to their average annual compensation, and management members have low change-in-control compensation, reducing event risk
Earnings Call Forensicsâ„¢ of the firm's Q1 2019 earnings call (5/8) highlights that management is confident in the depth and breadth of their prospective acquisition opportunities, their focus on eliminating non-strategic acquired products, and their ability to sell high-capacity internet access, IT transit, and broadband internet services
GTT currently trades below recent averages with a 16.1x Uniform P/E (V/E'). However, even at these levels, the market is pricing in expectations for Uniform ROA to improve from 13% in 2018 to 36% through 2023, accompanied by 3% Uniform Asset shrinkage going forward
GTT Communications provides cloud networking services including: wide area networking, which provides a variety of wide area networking solutions, including software-defined wide area networking, multiprotocol label switching, virtual private LAN service, and Ethernet; transport and infrastructure services, which provides a suite of transport and infrastructure services over its global network; internet, which provides clients internet connectivity and IP transit with availability and packet delivery; managed services, which provides managed network services, including managed equipment, security, managed hosting; and voice, which provides local voice service in various countries.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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