TIGO - Millicom

[alwaysinvert]

A logical merger from the spectrum auction results would seem to be Novator (WOM) taking over Movistar in Chile and Colombia, providing a partial exit for Telefonicá and allowing Novator the luxury of not starting from scratch in Colombia. But if it is not prohibited by antitrust concerns, Tigo should also be in the run for the Colombia business. Claro is most likely too big.

 

https://www.larepublica.co/empresas/el-multimillonario-islandes-que-peleara-con-claro-tigo-y-movistar-2940500

 

However, it might be that Movistar is too big to swallow for Novator and that their angle - as I indicated above - is to grab the corpse of Avantel on the cheap and develop it with their new spectrum access. If so, there is only one possible taker left for Movistar: Tigo. Either way, some kind of merger seems imminent.

 

Speculations along similar lines: https://digitalpolicylaw.com/novator-partners-estaria-interesada-en-comprar-telefonica-colombia/

 

____

 

https://digitalpolicylaw.com/telefonica-acelera-sus-ventas-en-america-latina-liberty-y-millicom-podrian-comprar-el-50/

 

Possibly either LILA or Millicom take part in all the assets ex-Colombia while Novator takes Colombia. This would leave the market structure in Colombia unsolved for the time being.

 

____

 

10b euros for 75-80% of Telefónica's Latin American business is mentioned here: https://www.eleconomista.es/mercados-cotizaciones/noticias/10309447/01/20/Telefonica-repunta-el-27-ante-el-rumor-de-ventas-latinas.html

 

This can be compared to TTM revenue of almost 11b USD and EBITDA of 2.8b USD. 1.25-1.3x sales and 4.9-5.2x EBITDA.

[StevieV]

I guess the question is if this is really cheaper or higher quality than for example a pure play like LBTYK or MEGACPO.MX. I think especially the latter is more appealing with a pristine balance sheet no wireless exposure and trading at 6x EBITDA.

 

TIGO look cheap based on EBITDA, but it seems that maintenance Capex is very high and consumes most of the cash flow. It’s hard to tell for sure, with so many moving pieces though.

 

I have the same question as Spekulatius's second paragraph.  Cheap on EBITDA is fine, but what about free cash flow (not OCF)?  Only a bit more cash than the dividend in 2017 and 18 and short of the dividend in 2019.  To be particularly cheap it seems to me as though it either needs to be growing fast or have significant leverage in turning EBITDA growth into FCF (FCF did jump nicely a few times in the past several years).  Not obvious to me that either of these things is the case, but would be happy to hear what I am missing.

[StevieV]

I guess the question is if this is really cheaper or higher quality than for example a pure play like LBTYK or MEGACPO.MX. I think especially the latter is more appealing with a pristine balance sheet no wireless exposure and trading at 6x EBITDA.

 

TIGO look cheap based on EBITDA, but it seems that maintenance Capex is very high and consumes most of the cash flow. It’s hard to tell for sure, with so many moving pieces though.

 

I have the same question as Spekulatius's second paragraph.  Cheap on EBITDA is fine, but what about free cash flow (not OCF)?  Only a bit more cash than the dividend in 2017 and 18 and short of the dividend in 2019.  To be particularly cheap it seems to me as though it either needs to be growing fast or have significant leverage in turning EBITDA growth into FCF (FCF did jump nicely a few times in the past several years).  Not obvious to me that either of these things is the case, but would be happy to hear what I am missing.

 

Bumping to see if I can get any insights into this.

[alwaysinvert]

Here's a list of points to consider:

 

1. It's run for tax efficiency with deliberately high capex, and quite a bit of what looks like "maintenance" capex right now is actually growth capex, see point 3

 

2. Some of their markets have only just turned structurally better and some more (Colombia) may soon

 

3. At some point soon the shrinkage in prepaid is going to slow down or be eclipsed by cable and postpaid so that the growth there shines through

 

4. Could lever up more. Some more non to low cashflowing assets left to monetize - Tanzania, Jumia (9.6% stake), Helios Towers (17% stake; 22% before the flotation in Q4), maybe some more towers in Latam

 

5. Long runway of relative pricing power ahead, primarily due to cable rollout but also as wireless markets have consolidated into 2-3 player markets

 

6. Low penetration for both cable and 4G, although ceiling is obviously lower than in developed markets

 

7. Lots of good M&A prospects as outlined in the thread

 

8. LILA fancied it for $7.6b a year ago; management/board said no and the CEO has made large purchases since, at higher levels than today

 

9. People, especially Americans, have an instant negative emotional reaction to Latam exposure - most especially this board after the adventures with LILA. But Millicom is actually well diversified and won't lose years to a hurricane or something like that. The only thing that would be a bit rough is another decade of super strong USD (although half their markets are now USD) or that all of Latam enters a lasting depression.

 

10. I only had 9 in me.

 

Of course, there are clear negatives - lots of resource markets exposure, volatile and corrupt countries, weak local currencies, markets with price wars and surely some other risks that I can't think of right now.

[StevieV]

9 is great.  Thank you for the thoughts.  Much appreciated.

[StevieV]

Earnings out today.  The much anticipated dividend cut is happening along with a shift towards buybacks.

[alwaysinvert]

Overall a strong report and good conference call, even if I haven't yet gone into all the granularities of the figures. The reporting is so complex with moving parts that it takes some time to work through it all.

 

I really appreciate the way management reasons about capital allocation.

 

Flash crash in trading right after the report release on dividend cut (which of course was at least somewhat telegraphed since the fall) + reports of a heavy miss against estimates due to confusion of consolidated vs non-consolidated figures. Market efficiency...

 

Ideally I would have liked them to cut the dividend altogether but this is a good compromise, not unnecessarily putting the stock in play with no major owner left. Maybe they will take the big plunge and go to 0 next year. Or they will make that decision if or when they do some more m&a.

 

Hopefully they can make some more divestments soon and put that liquidity to use in buybacks near current levels.

[alwaysinvert]

https://millicom.gcs-web.com/news-releases/news-release-details/millicom-repurchase-own-shares

 

Not gigantic but I expect that the 350k will be bought back before a new authorization at the AGM, mostly because of how incredibly up on the idea of repurchases Ramos is.

[NotSoWise]

Its 350k out of 101m, so I think its more related to stock options for management (both reasons mentioned in the press release). Its just 0,35%...

[alwaysinvert]

Its 350k out of 101m, so I think its more related to stock options for management (both reasons mentioned in the press release). Its just 0,35%...

 

It's part of a larger plan to allocate at least $500m towards buybacks in the next 3 years.

 

Mauricio Ramos:

 

Listen, on the buyback, I don't think it's news to anybody that we strongly believe, I strongly believe that our equity free cash flow growth profile is becoming stronger and stronger.

 

As I said, 2019 and 2020 are years in which we use some of that strength to strengthen the business operationally and strategically. But as the synergies and the good prospects of these acquisitions come through, our equity free cash flow profile and its growth become very, very interesting. And that is the perfect scenario, the perfect moment to actually give more of that equity free cash flow on a per-share basis to our shareholders. Hence, we think this is the perfect time for us to launch this buyback program and the reason we are putting it forth.

 

And we're giving ourselves three years for it, which we think is sensible. There are no specific, huge constraints, one way or the other. We just like to give ourselves plenty of time to execute, and there are obviously market restrictions that we need to abide by.

[NotSoWise]

Agree they want to do big buybacks instead of dividends, but this 350k will go for management options.

[alwaysinvert]

Agree they want to do big buybacks instead of dividends, but this 350k will go for management options.

 

No, this is not the reason. You are taking the template legalese of the *possible* reasons behind the buyback and running with one of several possible interpretations. 

 

First of all, they already have 580k shares in treasury (dilution was 0.3% last year). Secondly, they haven't bought back any shares since 2012 even though they have had the share-based incentive program.

 

Even if it was the reason - which it is not - what sense does it make to mentally allocate a certain section of buybacks towards incentive programs and others not? If dilution happens it happens and whether the investor should tolerate it or not is an issue. But it has nothing to do with whether buybacks in themselves are prudent or not.

[NotSoWise]

You may be right. After your comments would not bet money on what I said in the previous posts.

[CookingByTheNumbers]

Unbelievable sell off in TIGO. Cant seem to wrap my head around this given that 4Q and FY19 earnings was actually a decent report. Co. recently purchased shares at ~$40 range. Now currently trading at ~$28 (38% drop). Anyone have any insight into why, aside from COVID-19? Anything happening internally with Central/South America?

 

I understand the div cut was substantial. In fact, I was hoping for a complete elimination. I get co. is highly levered (most debt maturing around 2024), but Mauricio Ramos is a Malone protege and is taking a page out of the CHTR playbook.

 

For some perspective:

FY19 rev growth ~10% (due to acquisition)

Enhance liquidity due to Kinnevik distribution and US NASDAQ presence

Significant transition from pre-paid to post (significantly lower churn and predictable earning stream)

4G paving the way for connection analogous to here in U.S.

34% 4G smartphone data customers (39% penetration, ~25% y/y growth)

Robust spectrum, low and high band frequency in ALL markets

 

I could go on... but I clearly am missing something...

 

Quick back of envelope:

 

Latam EBITDA = 2,443m. Tack on 7x multiple (~60% biz wireless at approx 6x, 40% cable at 8x = blended ~7x)

You get an EV of 17,101 - 5860 (debt) = 11,241 MC.

101 shares out. and you should arrive at a share price of ~$111.

 

Perhaps my logic is wrong but this is incredibly undervalued...

[NotSoWise]

few guesses...

 

1. Much stronger USD - last 2 days

2. Price did not drop in the beginning - so needed to catch up

3. Recent small buyback was only for management stock options - dissapointment

4. If they dont do promissed buyback now due to low price (instead of dividend) - it means they dont have free cash/ keep it for bad times. If not buyback now at USD 28 then when? If no buybacks, then their story about dividend was BS in the short term (no free cash => lower dividend)

5. In panic time, price is not linked with value. It is whatever the supply/demend relationship is. It could be even USD 5 or 10 or whatever. Most likely it will not get negative.

 

 

 

 

 

 

[Spekulatius]

Unbelievable sell off in TIGO. Cant seem to wrap my head around this given that 4Q and FY19 earnings was actually a decent report. Co. recently purchased shares at ~$40 range. Now currently trading at ~$28 (38% drop). Anyone have any insight into why, aside from COVID-19? Anything happening internally with Central/South America?

 

I understand the div cut was substantial. In fact, I was hoping for a complete elimination. I get co. is highly levered (most debt maturing around 2024), but Mauricio Ramos is a Malone protege and is taking a page out of the CHTR playbook.

 

For some perspective:

FY19 rev growth ~10% (due to acquisition)

Enhance liquidity due to Kinnevik distribution and US NASDAQ presence

Significant transition from pre-paid to post (significantly lower churn and predictable earning stream)

4G paving the way for connection analogous to here in U.S.

34% 4G smartphone data customers (39% penetration, ~25% y/y growth)

Robust spectrum, low and high band frequency in ALL markets

 

I could go on... but I clearly am missing something...

 

Quick back of envelope:

 

Latam EBITDA = 2,443m. Tack on 7x multiple (~60% biz wireless at approx 6x, 40% cable at 8x = blended ~7x)

You get an EV of 17,101 - 5860 (debt) = 11,241 MC.

101 shares out. and you should arrive at a share price of ~$111.

 

Perhaps my logic is wrong but this is incredibly undervalued...

 

Pretty much everything thwt Malone has done outside of the US has gone bust. Malone’s model (regulatory capture/  benign competition in combination with low cost of capital) doesn’t not work outside of the US. At least one factor fails and often enough both.

[WayWardCloud]

Mauricio Ramos personally bought another $700k worth of TIGO at $25.

 

https://www.millicom.com/media/3985/2020-03-24-forced-liquidation-mr.pdf

 

The buybacks disclosed so far have unfortunately been inconsequential but I take solace in knowing the CEO is in this neck deep with me.

What a difference compared to others!

[capitalg]

I saw that as well and I may be reading the disclosure wrong, but it looks like a disposition - possibly a margin call because it says "forced liquidation."

[WayWardCloud]

I saw that as well and I may be reading the disclosure wrong, but it looks like a disposition - possibly a margin call because it says "forced liquidation."

 

Oh my! I read the document WAY too fast :o

Thanks for pointing out my mistake.

[jgyetzer]

I saw that as well and I may be reading the disclosure wrong, but it looks like a disposition - possibly a margin call because it says "forced liquidation."

 

Oh my! I read the document WAY too fast :o

Thanks for pointing out my mistake.

 

Does that make you uneasy as a shareholder?  It does me.  How can a CEO make prudent, long-term decisions when under this kind of personal, financial pressure?

 

[dwy000]

I saw that as well and I may be reading the disclosure wrong, but it looks like a disposition - possibly a margin call because it says "forced liquidation."

 

Oh my! I read the document WAY too fast :o

Thanks for pointing out my mistake.

 

Does that make you uneasy as a shareholder?  It does me.  How can a CEO make prudent, long-term decisions when under this kind of personal, financial pressure?

 

Personal financial pressure?  It looks like shares got sold for a margin call.  I'd be more concerned that he owns less shares to be motivated by.

[WayWardCloud]

I saw that as well and I may be reading the disclosure wrong, but it looks like a disposition - possibly a margin call because it says "forced liquidation."

 

Oh my! I read the document WAY too fast :o

Thanks for pointing out my mistake.

 

Does that make you uneasy as a shareholder?  It does me.  How can a CEO make prudent, long-term decisions when under this kind of personal, financial pressure?

 

I think your comment is straight on point.

 

This is a very different signal being sent than if he had executed a normal (non forced) disposal of shares.

On the plus side, I am not worried that he might be selling because he knows something we don't.

This is the same guy who bought 2.5M worth of shares at $54, more than twice the forced sell price, just nine months ago.

 

At the moment I am not worried about Ramos having set up the company as poorly (or I should say as aggressively because that could have played the other way) as his own portfolio for two reasons:

1/Liberty Latin America's leverage is much higher as a percentage of EBITDA than Millicom's so I would expect them to get in trouble first, which is not the case as of now. Although I'd say Digicel is the true coal mine canary here and they are definitely gasping for air so I guess Liberty could be next.

2/About 2/3rd of their debt isn't local currency but USD interest rates dropping should help keep the debt manageable despite the strengthening of the dollar.

 

To put things in perspective, Ramos went from owning 190k share = $5.3M to 160k shares = $4.5M.

It definitely shows his past overconfidence/greed and hopefully this episode will humble him.

I wonder how much leverage he is still under and whether we'll see more forced selling if the shares were to tumble again.

I kind of just... feel bad for the guy.

[compounding]

I don't think Ramos is too worried about his personal financial situation right now. He still owns 165k shares and will hopefully be gainfully employed as a CEO for a long time to come.

 

The buyback has not been inconsequential with regards to their current authorization. On the contrary, they blew through over 1/3 of the total amount authorized until May 5th in one day (curiously enough the day before Ramos' margin call). After that the pace has slowed down again, but they only have authorization to buy another 21k shares until May 5th. So either they expand the current authorization or buybacks will be muted until at least May 5th.

[jgyetzer]

Quarterly conference call was sobering.  Cancelled dividend and buybacks in order to maximize liquidity.  Ongoing losses in mobile.  However, they are still growing broadband subscribers which is the most valuable service-line.  I appreciated management’s humble tone.  The call was no-nonsense and focused on maintaining customer relationships and financial strength in order to exit the crisis ready to thrive.  Mauricio mentioned in Q&A that they question whether they are being overly cautious, but I prefer that to a sugar-coated approach.  Obviously the business is suffering, but at the current price the market seems to expect unlimited, ongoing quarantines and depression.  Any scenario other than that will look great.

 

Anyone else listen? 

 

https://edge.media-server.com/mmc/p/c2qerkke/dmediaset/audio

[WayWardCloud]

So we have : dividend cut, buyback cut, opex cut, capex cut AND a previously agreed upon deal in Costa Rica being walked back over some technicality.

 

Maybe Ramos is way over-reacting.

Maybe all hell is about to break loose on LatAm (virus+recession+FX?).

Or maybe he's using the crisis as an excuse to load his "big bazooka" ( ::)) because he has an acquisition target in mind. The expression sounds an awful lot like Buffet's "elephant riffle" and remember Telefonica is trying to divest the region in a rush. However, I don't see how treating them so unfairly in Costa Rica would conduce to good negotiation over acquiring the rest of their countries.