Morningstar | AMOV Updated Forecasts and Estimates from 19 Jul 2019
America Movil posted solid local performances in Mexico, Brazil, and Colombia--its three largest markets--during the second quarter, but currency weakness and challenges in smaller countries, notably Argentina, continue to weigh on reported results. We don’t expect to change our $18 fair value estimate or narrow moat rating on the firm. While we believe Movil shares are undervalued, we prefer Millicom at current prices as a means of gaining exposure to Latin American telecom.
As hoped, the Mexican wireless business rebounded nicely, with service revenue growth accelerating to 8.3% from 5.7% during the prior quarter. Pricing in the prepaid market began creeping up in April, a welcome sign after years of stiff competition, especially at the lower end of the market. Movil has changed how it categorizes revenues, but we estimate average revenue per customer, up 6% year over year, reached the highest level in four years. Despite economic concerns in Mexico, the firm reported a 13% increase in corporate revenue, helping slow the decline in the Mexican fixed-line segment. Total revenue in Mexico increased 3.4%, with margins expanding modestly (excluding the benefit of accounting changes) versus a year ago.
Wireless service revenue growth also accelerated in Brazil, hitting 8.9% in local terms during the quarter. Movil has increased its postpaid wireless customer base 16% over the past year. The prepaid base continues to shrink, but the pace has slowed sharply versus 2018. Average revenue per customer increased 14% year over year locally but was up only 3%-4% in both U.S. dollar and Mexican peso terms. On the negative side, the fixed-line business remains disappointing, with revenue down 2.5% on weakness in the television business. Management continues to point to network investments and its converged wireless and fixed-line offers as elements that will improve performance, but the market remains highly competitive amid a tough economic backdrop.
Colombia remained a bright spot during the quarter. Wireless service revenue grew 3% year over year, the best rate in two years, as pricing continues to improve. Movil also continues to add fixed-line customers in the country, lifting fixed-line and other revenue 7.6%. Here again, though, currency weakness caused revenue to decline in Mexican peso terms, down 7.4% year over year. As in Mexico and Brazil, a strong focus on cost control has pushed margins up thus far in 2019.