July 28, 2010 / 6:08 AM / 9 years ago

UPDATE 3-Virgin Media launches buyback as beats forecast

* Announces 375 mln stg share buyback

* Beats net addition forecasts, posts record ARPU

* London secondary shares up 2.8 percent

(Adds shares, analyst comment)

By Kate Holton

LONDON, July 28 (Reuters) - British cable operator Virgin Media VMED.O has launched a share buyback to reflect its growing confidence, after adding a better-than-expected 9,100 new customers in its traditionally tough second quarter.

The company will spend up to 375 million pounds ($582 million) buying back stock over the next 12 months as part of a 700 million pounds capital return programme that will also pay down debt.

Asked if the capital return programme would continue after the 12 months, Chief Executive Neil Berkett told Reuters they were referring to it as an “initial” 700 million pounds.

Evo Securities analyst Steve Malcolm said the capital return programme came around six months ahead of expectations and added to the positive sentiment surrounding the company.

“Virgin Media’s Q2 results beat our forecasts pretty much across the board,” he said in a note. “But the big news was the announcement of a 700 million pounds capital return programme — another positive signal from management.”

Virgin’s shares in London VMED.L, its secondary listing, were up 2.8 percent in weak volumes.

Virgin Media, which competes with pay-TV company BSkyB BSY.L and broadband providers such as BT Group (BT.L), said its 9,100 total new additions in the quarter compared with a loss of almost 28,000 customers a year ago and a company consensus for a net loss of 2,000 customers.

The second quarter is known for being a slower period as students and others move house and off the cable network.

“The results have been good for us but this is another step change I think,” Berkett said in an interview. “This is the first positive quarter we’ve had for a Q2 in about five years.”

Churn, or the percentage of customers who left the company, was flat at 1.3 percent and the percentage of those taking three services of TV, broadband and telephony increased to 62 percent from 59 percent a year ago.

That combined to give a record average revenue per user (ARPU) of 45.88 pounds.

Berkett said the group was also starting to see better traction for its quad-play offering which includes a mobile service and they expect this to improve further as they roll out a new platform next year that will enable content to be viewed on TV, computers and mobile phones.

The improved operating performance helped Virgin to post a second-quarter revenue up 7.1 percent to 964 million pounds in the strongest revenue growth since the company formed from a merger more than four years ago.

The key operating cash flow (OCF) metric was up 12.9 percent to 370 million pounds. The company did not provide a consensus due to the recent disposal of its channels business.

“The stock has rallied into results and an earnings beat was largely anticipated in our view; however, clarity on capital returns comes sooner than we expected and should allow the stock to sustain or extend recent gains,” Goldman Sachs said in a note. “Our estimates and price target are under review.” ($1=.6444 pounds) (Reporting by Kate Holton; Editing by Mike Nesbit)

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