Despite global volatility our EM Top Picks posted positive returns again in April and now up 34% YTD on average. As we have been arguing for some time EM Telco is a much better space than it used to be and this is now being reflected by the market it seems.
February was another good month for our top EM Telcos, now up 15% YTD on average. This note also includes key news & other thoughts in order to help investors generate alpha within the EM Telco space. With performance strong so far, we make no changes to our picks.
Millicom has reported a slower set of Q4 results and both service revenue and EBITDA came in a shade below consensus expectations. However, the EFCF performance was strong, well above expectations in Q4 and the guide for 2025 EFCF of ~$750m is also above consensus (in line with us).
Millicom has announced a new , very positive , shareholder remuneration policy which includes resuming regular cash dividends, sustaining or growing cash dividend every year, and keeping a prudent capital structure. The new dividend policy is well ahead of our expectations.
Millicom has reported a solid set of results with improving service revenue trends, a nice reversal in Home Broadband nets adds (driven by Colombia) and strong EFCF this quarter. The company has lifted its FY24 guidance for EFCF to ~$650m from “more than $600m previously” – though consensus is close to this level for FY24.
Drawing on the work of our colleague Chris Hoare (HERE for Africa), we broaden out our EM analysis of market concentration in wireless. LatAm screens well, in the largest market of Brazil (5 to 3 consolidation) but crucially also for the smaller caps of Millicom and – best in class – Liberty Latin America which remain the two top picks in the sector.
A series of transactions, involving four separate parties, have been proposed by Millicom (and with a MOU with Telefonica) which could take the patchy Colombian telco market to an effective duopoly, with Millicom as a strong no2. The deal could yet stumble (multiple parties, involves a formal privatization, regulation), will take a little while to consummate, leaves question marks over WOM (which filed for protection locally in April), but we think can comfortably create over $1 billion of syner...
Following strong Q1s last week we have pushed our target to $30, from $24. Underlying upgrades are 5-6% at EBITDA and we have trimmed capex further. Partly mitigating factors are 1/ We have cut our expectation for a dividend from Honduras, and 2/ Built in a 50% likelihood of a devaluation in Bolivia, though this doesn’t appear very imminent (we include in our valuation, not in estimates)
Millicom Q2s trends reported yesterday were weak, though within the parameters pre-guided to at the end of June. Perhaps most striking is the leverage of 3.34x as of Q2 which, including existing and potential Colombian spectrum liabilities (1.9 GHz and AWS), rises to nearer 3.75x. The solve for this could come from a deal in Colombia, though we will need 6-12 months to see whether this is approved ...
Following a similar initiative in Europe, we are picking up closer coverage of the high yield names in LatAm. In part there is a capital structure overlap with existing equities under coverage (Liberty LA and Millicom) but we have also separately engaged on new names: WOM in Chile (wireless, FTTH) and Totalplay in Mexico (FTTH). Our detailed understanding of these additional names should reinforce understanding of the relevant regional equities also (AMX, Megacable, Televisa).
A flurry of activity. Millicom last night announced that discussions with Apollo regarding an offer for all of Millicom shares are off. This comes 24 hours after the announcement of a MOU between Telefonica and Millicom to merge their mobile networks in Colombia (in reality a pretty "full" merger potentially) AND the latest news on a 5G auction date in December.
We publish today our take on the LatAm Telcos Q1 earnings season. As well as our broader note which picks out key themes and market by market insights, we also publish for the first time a summary of our database which looks at key financials and operational KPIs on a country level basis - see LatAm Telcos Quarterly Databank.
"What did they say on the call?!" was the question of the day as the stock, having opened up 3% initially - and following the date being announced for the rights offering (10 May) and Q1 earnings release, then reverse engined into the earnings call.
Ahead of Monday's Investor Day, Millicom released FY numbers this morning which were generally solid; higher corporate costs a slight worry, but broader guidance OK and including a pick up in homes passed within the existing capex envelope.
Q1 is set to be a busy quarter for Millicom. FY results are due on Feb 11, followed by an investor day on Feb 14 which is designed to showcase the stock ahead of a USD750 million placing due by the end of Q1 which is set to part-fund the Guatemala minority buy-in.
Duopolies, light regulation, US$-based revenues: Telco Nirvana for an EM investor. Millicom’s announced (and closed) buy-in of the minorities last week in one of the best country-examples of this construct means Guatemala will represent 38% of proportionate EBITDA.
Full Article at IIR has reaffirmed its Recommended rating for PIA after undertaking a review post the appointment of a new Portfolio Manager, Harding Loevner. The full report can be found on the IIR website. On 26 July 2021, Pengana International Equities Limited (PIA) announced a fully franked dividend of 1.35 cents per share for the June quarter. This represents an 8% increase on the March quarter dividend and takes the total dividends declared for FY21 of 5.1 cents per share, fully franked....
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