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We reiterate our long-term Neutral recommendation on Virgin Media Inc. based on the company’s strong financial results in the first quarter of 2013.

Why Kept at Neutral?

In the reported quarter, Virgin Media improved its average monthly churn rate to 1.1% from 1.2% in the year-ago quarter.  The churn rate improved despite a 5% price hike. Subscribers opting for the company’s services have shown their preference for its high-margin bundled services with innovative high-speed broadband offerings. Another major growth area is the company’s next-generation video services using TiVo Inc. (TIVO - Analyst Report) developed Internet-connected TV platform. The Mobile segment is also performing well.

Virgin Media is offering an innovative video service called TV Anywhere. This state-of-the-art application platform will enable the company’s subscribers to watch up to 45 live TV channels on several devices including TVs, PCs, smartphones and tablets. This simply means that customers can view live TV shows even outside home using their mobile devices. Furthermore, using this application, subscribers can manage recorded programs and control TiVo-developed set-top boxes from a remote place. 

On Apr 15, Liberty Global Inc. (LBTYA - Analyst Report) received European Union’s regulatory approval for its proposed acquisition of Virgin Media. In Feb 2013, Liberty Global decided to acquire a 100% stake in Virgin Media, in a cash and equity deal. The deal is worth around $15.8 billion or an enterprise value of nearly $23.3 billion. The deal is now being weighed by the U.S. regulator and is expected to be closed by the second quarter of 2013.

If this deal finally matures, then the merged entity will become a formidable challenger to BSkyB Group plc, the largest pay-TV operator of the U.K. BSkyB is partially controlled by News Corp. (NWSA - Analyst Report).

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