Sectors

Operators whose networks are already built and already paid for by a base of customers who rarely leave. He looks at the cost of keeping a subscriber against the revenue that subscriber produces over the years they stay, and at how much of the spending on the network is maintenance rather than expansion. Wireless carriers, fiber and cable operators, and the towers and long-haul routes that carry other companies' traffic all fall within the work. His interest is highest where the asset would be expensive to duplicate, the pricing is dull, and the cash flow after capital spending is real rather than promised.

Businesses that need a technology transition to go their way. Spectrum purchases or network build-outs funded with debt that current cash flow cannot service. Operators whose subscriber growth rests on pricing a larger competitor can undercut at will. He is also wary of consolidation stories in which the cost savings are counted before the networks are integrated, since the savings usually arrive later and smaller than the debt that paid for them.

• Churn, and the price increases customers absorb without leaving.
• Capital spending as a share of cash from operations, and which direction it is moving.
• The maturity ladder of the debt, set against the free cash flow that will have to meet it.

Electric, gas, and water utilities whose earnings are set by a rate framework, which makes the cash flow unusually forecastable and the balance sheet unusually important. He studies the rate base, the return the utility is permitted to earn on it, and how quickly spending on the system shows up in customer bills. The interest is in utilities investing in their systems at a pace the framework will fund, in service territories that are growing, with debt at the holding company that does not crowd out the operating company beneath it.

Utilities that have added merchant power, trading, or other lines whose earnings are not set by a rate framework and whose losses are, in practice, borne by the utility's balance sheet. Holding companies whose debt depends on dividends the operating utility may not be permitted to pay. Plans that assume the framework will grant more than it historically has, and dividends already running ahead of the cash flow that is supposed to fund them.

• The gap between what a utility has spent on its system and what it has so far been allowed to recover.
• Interest coverage at the operating company, and then again at the holding company.
• Demand in the service territory, adjusted for weather, and whether it is growing.