New Charter expected to lose 40,000 video subs, gain 248,000 broadband subs in solid Q2 performance

New Charter, the newly formed cable behemoth combining Charter, Time Warner Cable and Bright House Network, is expected to have a messy second-quarter due to integration. But at least one analyst firm is expecting a solid performance from the company and an improvement over the year-ago quarter.

In a new research note, UBS analysts predicted New Charter's second-quarter quarterly revenue growth will hold fairly stable at 6.8 percent and that the company will lose 40,000 residential video subscribers (compared to 74,000 in the year-ago quarter) and will add 248,000 residential broadband subscribers (compared to 244,000 in the year-ago quarter.

"We expect net subscriber adds to show normal seasonal pressure but improve [year-over-year] given issues at telco competitors," UBS analysts wrote in a research note.

New Charter could stand to benefit in areas like Florida where is competes with Frontier Communications, which has had a difficult time integrating the wireline assets it recently acquired from Verizon.

UBS said it believes New Charter's synergy guidance is overly conservative, though, with New Charter at 5 percent of cash opex compared to 10-15 percent for prior pay-TV deals. The firm expects an upside to cost savings and margins in the long term, "although spending may be elevated near-term due to investments in on-shore customer care and completion of TWC's all-digital conversion."

UBS is forecasting New Charter's second-quarter EBITDA will reach $3.6 billion with margins up annually to 36.2 percent. That's based on a partial benefit of programming savings of around $40 million of sales, which UBS said could double in the third quarter.

"These savings should more than offset higher costs related to customer facing initiatives," UBS wrote.

UBS expects capex to remain fairly high as New Charter invests to take the TWC footprint all-digital through mid-2018, but added that it should be a "quicker, easier, and less expensive process than Charter's two-year all-digital shift, due to TWC's progress to date with TWC Maxx."

As UBS calls a fairly stable quarter for New Charter, other analysts have warned the transition and integration could lead to disruptions including customer service getting worse.

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