LILA - Liberty Global Latin America tracker

[rogermunibond]

Given the left leaning govts of most Caribbean islands and their govt sensitivity to monopolies - is this power exerciseable?

 

It seems not, but that under each country's telecom laws, most of the subsea fiber assets are highly regulated in pricing and availability to competitors.

[WayWardCloud]

Many think that the C&W acquisition at 12x EBITDA was high. In the recent quarterly earnings call, Lilak CEO says that they are utilizing less than 10% of the network capacity of the sub sea network from C&W acquisition. The 12x EBITDA does not factor in the upside of C&W's greatest asset i.e. sub sea network. Put another way, I think higher utilization of the sub sea network is a meaningful tailwind for Lilak that is being undervalues. Lilak CEO said sub sea network is being undervalued by the analyst community.

 

Would be interested to hear if anyone has thoughts on my line of thinking.

 

John Malone was initially an owner of Columbus for that very reason (the undervalued subsea network) so you're probably right. He managed to get C&W to buy them at a very high valuation (13x?) then just a year later got LILA to buy the new C&W+Columbus entity at yet another insanely high valuation for an emerging countries based telco (12x, possibly worse with all the IFSR/GAAP tricks). He then crafted a complex deal offering that led LBTYA shareholders to favore the European assets during the spin-off while he on the other hand chose to get more of LILA. Finally, he bought a bunch of shares on the open market directly (which he very rarely does) but wrong timing because two hurricanes hit Puerto Rico a month later (Karma!!!)

 

I believe those 3 years have been all about Malone consolidating his Latin American assets under one roof, LILA, at the best possible price to HIM and he did so at the expense of both LBTYA and LILA shareholders with the complicity of Mike Fries. Not saying that the multiple paid for C&W will not some day turn out to still have been somewhat a good deal but I think it would be naive to believe that they fought as much as they should have in the transaction process given that Malone was essentially on both sides of the deal.

 

So the guy has clearly been a dick to his shareholders. I believe that's what creates today's opportunity. Now, at a depressed valuation of just around 6x because of all that murky past, we can get shares of a company that he clearly has a lot of faith in and finally get to enjoy well aligned interests.

 

 

[Spekulatius]

What is the moat around subsea fiber assets exactly? I don’t see one except for thr relatively high cost to pu thr fiber in place. Once in place, it is much cheaper to light up additional capacity than to build a new one, so that may be a deterrent. However, if a deep pocketed competitor comes in and has a few hundred million they invest, I am guessing he could just put in all the subsea fiber he wants.

 

It’s not like a last mile moat, where you have to dig up a few hundred thousand front yards to obtain connections.

[cameronfen]

What is the moat around subsea fiber assets exactly? I don’t see one except for thr relatively high cost to pu thr fiber in place. Once in place, it is much cheaper to light up additional capacity than to build a new one, so that may be a deterrent. However, if a deep pocketed competitor comes in and has a few hundred million they invest, I am guessing he could just put in all the subsea fiber he wants.

 

It’s not like a last mile moat, where you have to dig up a few hundred thousand front yards to obtain connections.

 

It could be like the case of the railroads, where building one set of subsea fibers would be quite profitable, but another company duplicating these assets may not be worth it considering you would be competing with an incumbent player. 

[jgyetzer]

Anyone have an impression after the quarterly results?  Seemed that VTR and PR are going well. Lots of prepaid mobile loss with C&W but with encouraging broadband subscriber additions.  Decreased leverage compared to last quarter as well.

 

I assume most growth won’t flow through to financial statements in the form of free cash flow immediately but my impression is the market wants to see that and share repurchases rather than investment in growth.

[HalfMeasure]

What is the moat around subsea fiber assets exactly? I don’t see one except for thr relatively high cost to pu thr fiber in place. Once in place, it is much cheaper to light up additional capacity than to build a new one, so that may be a deterrent. However, if a deep pocketed competitor comes in and has a few hundred million they invest, I am guessing he could just put in all the subsea fiber he wants.

 

It’s not like a last mile moat, where you have to dig up a few hundred thousand front yards to obtain connections.

 

It could be like the case of the railroads, where building one set of subsea fibers would be quite profitable, but another company duplicating these assets may not be worth it considering you would be competing with an incumbent player.

 

There's a sharp delta between the economics of the first mover and the second mover and every n'th mover thereafter due to the fact every incremental build splits the topline economics (and due to operating leverage there is a worse than linear relationship between the topline and bottom line) - especially where incumbents have excess capacity.

[Foreign Tuffett]

What is the moat around subsea fiber assets exactly? I don’t see one except for thr relatively high cost to pu thr fiber in place. Once in place, it is much cheaper to light up additional capacity than to build a new one, so that may be a deterrent. However, if a deep pocketed competitor comes in and has a few hundred million they invest, I am guessing he could just put in all the subsea fiber he wants.

 

It’s not like a last mile moat, where you have to dig up a few hundred thousand front yards to obtain connections.

 

It could be like the case of the railroads, where building one set of subsea fibers would be quite profitable, but another company duplicating these assets may not be worth it considering you would be competing with an incumbent player.

 

There's a sharp delta between the economics of the first mover and the second mover and every n'th mover thereafter due to the fact every incremental build splits the topline economics (and due to operating leverage there is a worse than linear relationship between the topline and bottom line) - especially where incumbents have excess capacity.

 

FYI

 

https://www.deepbluecable.com/

[spark411]

Earnings report:  Good - Chile VTR revenue and OCF up nicely.  PR doing the same.    Bad:  C&W revenue and OCF did not grow.  Main reason is the loss of mobile subscribers.    Loss is due to Digicel offering low prices to win share.  Looks like Lilak is willing to lose share rather than match unsustainable prices.

 

I think the shares are 50% of where they should be.  Depending on how you look at it, market gives no value to C&W and/or PR/Caribbean markets to come back to normal after hurricanes.    IMO there is a perception issue with institutional investors b/c of hurricanes and unless there is a huge splash in earnings, institutional investors will not drive prices higher.    Historically, John Malone forces the issue by buying back shares aggressively.  Unfortunately, Lilak does not have cash to buy back shares due to OCF drop in PR.  Currently debt is at 4.2x and CEO says that they want to stay in the low 4s.  With PR OCF getting back to normal state quickly and the need for capex to rebuild the network subsiding, LILA should be in financial position in a quarter or two to buy back shares and drive share price higher (if the market does not respond before then).

 

In regards to the moat of the subsea network, C&W has 50,000 km of cable.    Deep Blue Cable (backed by Digicel Owner) is trying to replicate but the network in km will be smaller.  Not only will a new cable require money, but building the network will take time and be challenging to get approvals from the multiple country municipalities.

[HalfMeasure]

Earnings report:  Good - Chile VTR revenue and OCF up nicely.  PR doing the same.    Bad:  C&W revenue and OCF did not grow.  Main reason is the loss of mobile subscribers.    Loss is due to Digicel offering low prices to win share.  Looks like Lilak is willing to lose share rather than match unsustainable prices.

 

I think the shares are 50% of where they should be.  Depending on how you look at it, market gives no value to C&W and/or PR/Caribbean markets to come back to normal after hurricanes.    IMO there is a perception issue with institutional investors b/c of hurricanes and unless there is a huge splash in earnings, institutional investors will not drive prices higher.    Historically, John Malone forces the issue by buying back shares aggressively.  Unfortunately, Lilak does not have cash to buy back shares due to OCF drop in PR.  Currently debt is at 4.2x and CEO says that they want to stay in the low 4s.  With PR OCF getting back to normal state quickly and the need for capex to rebuild the network subsiding, LILA should be in financial position in a quarter or two to buy back shares and drive share price higher (if the market does not respond before then).

 

In regards to the moat of the subsea network, C&W has 50,000 km of cable.    Deep Blue Cable (backed by Digicel Owner) is trying to replicate but the network in km will be smaller.  Not only will a new cable require money, but building the network will take time and be challenging to get approvals from the multiple country municipalities.

 

Thanks Spark, that's a very succinct and cogent view of the situation. It seems like PR essentially set the company back a year, but it should be back on track now.

[GregS]

Earnings report:  Good - Chile VTR revenue and OCF up nicely.  PR doing the same.    Bad:  C&W revenue and OCF did not grow.  Main reason is the loss of mobile subscribers.    Loss is due to Digicel offering low prices to win share.  Looks like Lilak is willing to lose share rather than match unsustainable prices.

 

I think the shares are 50% of where they should be.  Depending on how you look at it, market gives no value to C&W and/or PR/Caribbean markets to come back to normal after hurricanes.    IMO there is a perception issue with institutional investors b/c of hurricanes and unless there is a huge splash in earnings, institutional investors will not drive prices higher.    Historically, John Malone forces the issue by buying back shares aggressively.  Unfortunately, Lilak does not have cash to buy back shares due to OCF drop in PR.  Currently debt is at 4.2x and CEO says that they want to stay in the low 4s.  With PR OCF getting back to normal state quickly and the need for capex to rebuild the network subsiding, LILA should be in financial position in a quarter or two to buy back shares and drive share price higher (if the market does not respond before then).

 

In regards to the moat of the subsea network, C&W has 50,000 km of cable.    Deep Blue Cable (backed by Digicel Owner) is trying to replicate but the network in km will be smaller.  Not only will a new cable require money, but building the network will take time and be challenging to get approvals from the multiple country municipalities.

 

Agree with this summary.  FWIW, I think the market was starting to change its opinion of the stock last summer when Malone made his big purchase, but then the Hurricanes hit.  As HalfMeasure says, Puerto Rico set the company back a year.

[tefl0n]

Any thoughts on why the A shares (with voting rights) are cheaper than the C's (no votes)?

[Liberty]

Any thoughts on why the A shares (with voting rights) are cheaper than the C's (no votes)?

 

The usual explanation is lower liquidity.

[Spekulatius]

So, how much are the effects of the PR hurricane hit still impacting the results? I get about $20M in OCF and $30M in Capex spent. FCF was -$15M last quarter, so we get $35M/ quarter?  Revenues going up 2% vs -2%? Not exactly enticing. Next quarter, we get negative currency effects from the strong US$. At least the Hurricane season this year is below normal, so with a bit of luck, nothing in the Caribbean gets hit.

[spark411]

2 websites I found were interesting and relevant to Lilak investment.

2 takeaways.

A) American Movil is a competitor to Lilak. Especially in Chile. I will start watching American Movil to see how the overall latin american telecom market is doing.

B) Latin America's broadband is growing fast which bodes well for Lilak's long term growth.

 

https://blog.telegeography.com/latin-americas-broadband-sector-continues-its-growth

 

https://seekingalpha.com/article/4188464-america-movil-sa-de-cv-2018-q2-results-earnings-call-slides

[spark411]

CFO buying 20K shares.    Good to see insider buying.

 

http://phoenix.corporate-ir.net/phoenix.zhtml?c=254680&p=IROL-sec

[spark411]

CEO buys $2M worth of stock.  2 days in a row of insiders buying...

[Foreign Tuffett]

Digicel is turning into a digi-dumpster fire. One would think that their massive debt load may hamstring their ability to be competitive.

 

https://www.irishtimes.com/business/technology/digicel-s-cfo-shows-he-s-mobile-1.3611723

 

https://www.irishtimes.com/business/technology/digicel-seeks-to-ease-debt-burden-with-bond-switch-offer-1.3613842

[rogermunibond]

https://finance.yahoo.com/news/liberty-latin-america-acquires-remaining-123000411.html

 

Buying out Cablevision stake with shares.

[meiroy]

 

*puts a gas mask on*

 

 

Question: if the USD weakens would this stinking pile of .... automatically trade up? Thanks.

 

[petec]

 

*puts a gas mask on*

 

 

Question: if the USD weakens would this stinking pile of .... automatically trade up? Thanks.

 

Depends why. A US recession wouldn't do most of these economies much good.

[Spekulatius]

 

*puts a gas mask on*

 

 

Question: if the USD weakens would this stinking pile of .... automatically trade up? Thanks.

 

Depends why. A US recession wouldn't do most of these economies much good.

 

CHTR, CMCSA > LBTYA > LILA

 

For LILA, growth and FCF is lower, Leverage and borrowing costs are higher (the latter is due to hedging costs for currency risk) and the business is just to disparaged. I would rather buy LBTYA where you have the pot. Catalyst of a sale of a good chunk of their business.

 

If Latin and central American economies and start to do great, so should do the local currencies and then it is possible that LILA stock appreciates on the grounds of currency improvements and better business performance.

[chesko182]

Sounds like a big deal: Liberty Latin America in bid to acquire Millicom - sources

 

https://www.reuters.com/article/us-millicom-m-a-libertylatinamerica/exclusive-liberty-latin-america-in-bid-to-acquire-millicom-sources-idUSKCN1P820D

[rogermunibond]

It's "the" big deal that everyone has been expecting.  :)

[HalfMeasure]

Sounds like a big deal: Liberty Latin America in bid to acquire Millicom - sources

 

https://www.reuters.com/article/us-millicom-m-a-libertylatinamerica/exclusive-liberty-latin-america-in-bid-to-acquire-millicom-sources-idUSKCN1P820D

 

Anyone know Millicom's assets well enough to have a feel for how much incremental debt capacity there is @ Millicom?

[chesko182]

I believe leverage is 1.9X (debt to EBITDA) so def some capacity there