Telecom Stake Distribution a Miss At Current Levels, On Watchlist
For Swedish investment company Kinnevik AB (KINVB), this is the second stake distribution for the company in the last year or so as it distributes its entire 37.2% stake (or 37.8m shares) in Latin American and African telecom and media company, Millicom International Cellular SA (TIGO). However, due to stiff competition from larger peers operating in Latin America, KINV’s initial challenge to exit its stake in TIGO via an IPO as large shareholders trim their stake, we will continue to watch this situation from the side lines for a better entry point.What’s Interesting?
Back in June 2019, Swedish investment company Kinnevik AB (KINVB), the largest shareholder of Millicom International Cellular SA (TIGO) initially wanted to exit its stake in TIGO by IPOing 29% (or 11m shares) of its total 37.2% stake (or 37.8m shares) it owned in TIGO. However, citing challenging market conditions in the US, management opted to distribute its entire holding in TIGO in Sep 2019, with the stake distribution to take place on Dec 3, 2019.
The subdued investor interest to the public offering of TIGO was apparent, which can be associated to the significant underperformance in the share price of TIGO, down by 32% in the last 2 years and again down by 24.7% in the last 1 year Vs. NASDAQ Composite Index returns of +23.4% and +21.9% respectively. TIGO primarily operates its telecom business in Latin America (91.2% of total revenue in FY18) and Africa (8.8% of total revenue in FY18), where the business has largely remained stagnant over the last couple of years with average revenue growth of 0.4% over FY17 and FY18.
The Edge View: TIGO operates majorly in Latin America where it faces stiff competition from larger peers such as AMXL MM and TEF SA, which have already pressurized TIGO’s FY20E net income margins towards 1.1% Vs. peers, TEF’s 7.6%, AMXL’s 7.3% and MTN’s 8.8%. Also, with near-term takeover talks likely on hold with LILAK due to Malone’s recent acquisition, we see limited near-term catalysts for further price appreciation in TIGO now.
Millicom International Cellular is a global telecommunications group with mobile telephony operations in emerging markets. Co also operates various combinations of fixed telephony, cable and broadband businesses in five countries in Central America. Co. operates its mobile businesses in El Salvador, Guatemala, Honduras, Bolivia, Colombia, Paraguay, Chad, the Democratic Republic of Congo, Ghana, Mauritius, Rwanda, Senegal, Tanzania and Laos. Co. also provides broadband and cable television services in Costa Rica, Honduras and El Salvador; fixed telephony in El Salvador and Honduras, and corporate data services in the above countries and in Guatemala and Nicaragua.
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