European cable TV companies' outlook weaker than US peers in 2019

The outlook for the US cable television market is somewhat better than for Europe in 2019, with European cable operators more exposed to slower growth due to the region's weaker credit quality, according to a fresh take on the sector by a leading rating agency.

In a note to clients, Moody’s said US cable companies were better positioned than their European counterparts, albeit with pressures building from challengers such as Netflix.

Revenue growth for European cable operators will be slower than the US, falling to around 2.0% in 2019 from 2.5% due to lower growth in the UK, and weak performance in the Netherlands and Switzerland, the agency added. 

“The US is likely to see healthy revenue growth of 4.5% as broadband subscriber growth so far offsets continued television subscriber losses,” said Gunjan Dixit, Vice President and Senior Credit Officer at Moody's.

“Earnings growth for Europe's cable operators will lag behind the US in 2019 as revenue growth slows and cost pressures in some countries outpace M&A related synergy benefits in others." 

While margins in Europe are higher than the US, the comparative benefit is eroded by higher capital spending needs.

European cable companies have higher leverage than their US peers, making debt reduction a priority. But Liberty Global plc (Ba3 stable) is likely to receive disposal proceeds of €12.5 billion in 2019 and Moody’s expects it to use a portion of it to reduce its European subsidiaries' debt, alleviating pressure on credit quality.

In Europe, M&A is likely to remain in-market mostly as cable or fixed-line telecom operators strike deals to acquire mobile operators. In the US, this trend is not evident, with recent large acquisitions such as Comcast Corporation's (A3 stable) purchase of Sky plc (Baa2 review for upgrade) reducing the capacity for further major deals in the near term.