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Changes at Millicom Pique Our Interest

This narrow-moat telecom is making moves in and beyond wireless.


Allan C. Nichols: Millicom's been one of our favorite stocks off and on for several years. And it's made some interesting changes recently that we think make it quite interesting again. In December, it acquired Cable Onda, the largest cable TV company in Panama. And that followed up in January with announcing that it was going to acquire the wireless assets from Telefonica, in Panama, Nicaragua, and Costa Rica. Telefonica's currently the largest operator in both Nicaragua and Panama. So, combined, Millicom will now be the number one in cable and wireless in Panama, and number one and number two in Costa Rica. This also makes it a converged operator in all of its countries. Convergence has been a big push recently, as it's made cable acquisitions in several other countries. And so it's been able to cross-sell wireless and fixed and broadband services and pay television. This has been able to generate some nice revenue growth over the last few years, particularly coming off of the broadband business, so that now is able to be done in all of their markets. 

One of the concerns has been that historically Colombia has been one of the largest pieces of the business and, with Guatemala, was about half of its reported revenue, but it only owns about 50% of both of those countries. So when you adjust for their ownership stake and you remove through minorities--the part that they don't actually own--that piece reduces. And then with these acquisitions, Colombia has become much less of an important piece of the business. And so you're getting much more diversified revenue and earnings, and we think that will help sentiment as you have less volatility from currency movements. 

Outside of Colombia, which is a large country, the other countries actually have fairly small populations. And so there's not an incentive for new telcos to come in and compete. And even though America Movil competes in most of their markets, which is the largest phone company in Latin America, it's too small for them to compete aggressively. So, returns tend to be quite good, and competition is quite stable. 

Finally, Millicom is trading at one of our lower multiples of enterprise valued EDITDA and has one of its highest organic growth rates. So we think this is quite an interesting company that people should take a look at.

Allan C. Nichols does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.