NIHD - NII Holdings

[Guest hellsten]

I know some people on this board are interested in CLWR and Sprint. Is anyone following NII Holdings? The stock seems very attractive. NIHD is trading at P/B of 0.3 vs industry average of 1.6, and P/S of 0.2 vs industry average of 1.1.

 

Some quick facts about NIHD:

- forward P/E 4.3  

- P/B 0.3

- P/S 0.2

- P/CF 1.2

- down 84% YTD

- $2.3 billion cash

- $4.2 billion long-term debt

- added 1.684 million net subscribers to its network in 2011, bringing its total year-end subscriber base to 10.7 million

- revenue has grown from $143 million in 2002 to $6.7 billion in 2011

- huge declines in ROE, ROIC, ROA and net margin since 2003

- guru interest: Joel Greenblatt (adding), Steve Mandel, Mario Gabelli (adding), George Soros (sold out), Lee Ainslie and Ron Baron.

- top five holding of Gabelli & Company Focus Five

- ValueLine 2015-2017 projections are 250-475%, or 38-58% per year.

- Z-score 1.6

 

From Morningstar:

NII has directed its operations toward postpaid corporate customers demanding instant connectivity.

…

The company provides services in Mexico, Brazil, Argentina, and Peru as well as Chile on a limited basis. Although NII only has about 3% market share in these countries combined, its blended monthly ARPU of roughly $50 is by far the highest in the region as a result of its extremely valuable business clientele. Strong revenue generation has enabled the company to consistently deliver attractive operating margins and returns on investment.

 

 

Comments from GAMCO Global Telecommunications Fund's first quarter report:

the company announced weaker than expected fourth quarter results and indicated that it will have to delay the start dates for 3G network launches. As a result, 3G is now expected to be available in Mexico in late third quarter and in Brazil by the end of 2012.

 

NII expects to grow its subscriber base by more than 2.5 times over the next five years and more than double revenues and EBITDA over the same period

 

NII is trading at under 4x 2012 estimated EBITDA and at a significant discount to its private market value. The company is a likely long-term acquisition target for larger carriers or private equity firms, given its strong brand name in Latin America and valuable (predominantly postpaid) customer base.

 

References:

http://www.gabelli.com/focus-five.html

http://www.gurufocus.com/news/157713/nii-holdings-the-solid-cash-flow-generating-telecom-company-with-significant-insider-buying

http://quote.morningstar.com/stock/s.aspx?t=NIHD

http://www3.valueline.com/secure/vlispdf/stk1700/vlispdf/f18069.pdf

http://www.gabelli.com/Gab_pdf/QRep/2012q1/401.pdf

 

[Guest hellsten]

What bears are saying:

- Debt in USD. Revenue in Latin American currencies.

- Missed Wall Street's earnings expectations 6 quarters in a row and 9 out of the last 10.

- NIHD is going to be eaten alive by TEF, AMX, and other giants.

- Declining ARPU.

 

What Morningstar's bulls and bears say:

Bulls Say

 

The firm has launched 3G service in Peru with handsets that feature mobile broadband data speeds up to 50 times faster than those on its 2G service. This should help improve its ARPU and churn outlook.

By investing only in populated areas where economic activity is high, NII has been able to enjoy high returns on investments and strong operating margins.

NII has done a good job of lowering its churn rate in Mexico. The firm has raised its customer retention investments and tightened its credit standards to focus on higher-value, lower-risk customers. The churn rate in Mexico (1.73%) is currently at multiyear lows. Read more

 

Bears Say

 

NII competes with telecom giants that are beginning to target the postpaid wireless market. America Movil is relaunching its push-to-talk service, which could affect NII's market share. These well-capitalized operators have the ability to launch a price war, which could significantly hurt NII's profit margins.

3G deployment delays in Brazil in Mexico have hindered the firm's 2012 growth prospects.

The firm doesn't own the underlying fixed-line infrastructure to handle wireless data. In Mexico, for example, NII uses Telmex as its infrastructure provider. By leasing instead of building fiber, NII runs the risk of not having full control of its cost base.

 

Q2 2012 earnings release is tomorrow.

 

By the way, while researching NIHD I found the ProFunds UltraSector Mobile Telecom fund:

-30.51% Average Annual Since Inception               

-98.75% Cumulative Since Inception       

 

Top 10 Index Companies:

Name Weight

Crown Castle International Corp. 40.12%

Sprint Nextel Corp. 25.30%

SBA Communications Corp. 17.94%

Telephone and Data Systems Inc. 5.60%

MetroPCS Communications Inc. 5.01%

NII Holdings Inc. 4.54%

U.S. Cellular Corp. 1.49%

[Guest hellsten]

Up 20% yesterday. Down 25% today. What were people thinking when they bid it up to $90 in 2007?

[momentumgeek]

prob you have here is that they have an awful iden network (bad technology, bad handsets, no data and extremely high arpus) and as people shift off of iden to 3g smart phones, arpu's are declining so fast that they are continually missing estimates and hemmoraging money. it's going to continue for along time as idean sub losses at high arpus accelerate (almost 100% incremental margins) and when they actually get their 3g network up and running, they'll just be like everyone else. was short but no longer.

[JEast]

Maybe a little life left in this guy as Brazil possibly cuts rates.  The question is if they will just become ubiquitous with the rollout of their 3G services and indistinguishable from other carriers.

 

http://www.businessweek.com/news/2012-10-29/telefonica-loss-is-nii-s-gain-on-fees-cut-plan-corporate-brazil

 

Cheers

JEast

[txfan2424]

I wanted to bump this. Anyone take a look at this recently?

[writser]

Potentially interesting now. Company has reached an agreement to sell Nextel Brazil to America Movil for $905m cash-free / debt-free. Of that amount, the company expects $188m or $1.85 / share to be left over to distribute to shareholders. On top of that there's $106m or ~$1.05 / share in escrow from their sale of Nextel Mexico. Company doesn't expect to recover the complete Mexico escrow but comes up with a total 'estimated distributable value' of $2.59 / share vs. today's price of $1.90.

 

Sounds great but obviously there's a lot of uncertainty:

 

- AT&T refuses to sign off on the Nextel Mexico escrow. Company is now suing AT&T to release $68m.

- $30m from the Nextel Brazil sale is to be placed in another 18-month indemnity escrow.

- Brazilian regulators need to approve the deal.

- Nextel Brazil is burning cash - could become a problem quickly if the deal is delayed.

- due to all the debt any price adjustments of the America Movil offer (i.e. currency movements, working capital adjustments) will affect the value of the stub greatly.

- what are liquidation costs? What is the timeline for liquidation?

 

The company expects an initial distribution of $1 - $1.50 followed by subsequent distributions.

 

Basically impossible to handicap all the moving parts but if you assume something like an $1.25 distribution by year end and apply a steep haircut to all escrow amounts and model a $1 distribution somewhere in 2021 / 2022 you are looking at a ~10% IRR.

 

Might be interesting at current prices but it is on my too-hard pile for now. Apart from the escrow lawsuit I also can't state confidently that the Brazil sale will close quickly (what will regulators in Brazil do?) and given the cash burn this could turn quickly into a train wreck given any delays.

 

On the other side this looks like a typical deal that the market hates: uncertainty on top of uncertainty on top of uncertainty. I'll try to keep an eye on this and I wouldn't be surprised if today's price offers an adequate risk/return.

[Guest roark33]

This company has been for sale for years, so basically only got one offer after being on the block for years, so any negative movements in the deal terms are going to go against it given the leverage the sole bidder has at this point. 

[writser]

Price down to $1.70. Otcadventures write-up: http://otcadventures.com/?p=2049