Author Topic: TIGO - Millicom  (Read 6888 times)

kab60

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Re: TIGO - Millicom
« Reply #20 on: November 05, 2019, 04:11:24 AM »
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But how do you square the acquisitions versus buying back stock? This thing is trading around 4,4xFY19 ebitda estimates. Before synergies they paid 6,8x for the Telefónica assets (5,8x after) and 7,9x for Cable Ondas cable assets in Panama.

That seems to be true of most cable assets everywhere these days. There's simply a big valuation gap between what public investors and private investors are willing to pay for them. Or, as Malone puts it: "In this industry you're often worth more dead than alive". So in theory a completely rational cable company should even go beyond not growing and buying back stocks, it should sell all its assets and distribute the money to its owners. That's what LBTYA seems to be doing so far. As much as the Liberty family (I count Ramos in, he's basically a cousin) loves buybacks, the growth mindset runs deep in their DNA. Or, as Malone puts it: "One cookie now or two cookies later".

I'd say there is a decent chance the dividend is about to get cut and replaced by buybacks, which would make me very happy. Like maybe 20-30%? Unfortunately, managements often have a hard time cutting dividends because it's perceived as a failure and sends the stock twirling down.

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And i hate hate hate their definition (and focus) on OCF (which they define as ebitda-capex).

Could you please elaborate?
Because their so-called OCF isn't operating cash flow - it ignores both interest and taxes while it includes capex. So when they guide towards +10 pct. OCF growth I suppose they can simply hit their targets by lowering capex (haven't seen anything to indicate that they try to game this).

I like ebitda as a starting point, but cash should be cash. :)

Their reported "organic" growth in their presentation also ignores currency effects it seems. But when you operate in countries with much higher interest rates, currencies usually do depreciate. So by ignoring currency effects you get the benefits from higher inflation through higher revenue. And then you "ignore" how that devalues the currency, so the optics are better.

So when Millicom points towards organic growth in its presentation it seems it ignores the currency effects of operating in LATAM where the 10-year isn't trading at sub 2 pct... (only about half is linked to USD, more proforma of acquisitions).

A lot of companies do this - Philip Morris, Carlsberg - probably the norm rather than the exception. It's not like it's rocket science to figure out, but I think it's disingenious.

Seems when you look at the actual numbers and not their presentatios that revenue is flat from 2016-2018. And while cable is growing, it seems to have only grown 10 pct. from 2016-2017 while basically flat in 2018. Now, the stock is down, so it is all probably reflected in the price, but it hasn't exactly been a growth company (despite the large number of cable and 4g adds). Those investments might be necerassary just to keep the status quo?
« Last Edit: November 05, 2019, 05:01:22 AM by kab60 »


dwy000

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Re: TIGO - Millicom
« Reply #21 on: November 05, 2019, 07:05:53 AM »
I like OCF.  To me EBITDA is just ignoring a fundamental part of operating the business (capex) like it is discretionary or can be cut to zero.  To compare EBITDA in a software business vs a high fixed cost and hard asset business is apples to oranges.  OCF is a much more accurate view of the cash the business itself is churning out to fund capital decisions. Even better would be maintenance capex vs total.

CookingByTheNumbers

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Re: TIGO - Millicom
« Reply #22 on: November 13, 2019, 04:11:46 PM »
November 7th was the Extraordinary General Meeting.
Looks like tomorrow is the effective date to receive redemption shares.

https://www.kinnevik.com/media--contact/press-releases/2019/11/2199994-Kinnevik-Extraordinary-General-Meeting-2019

alwaysinvert

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Re: TIGO - Millicom
« Reply #23 on: November 16, 2019, 09:20:40 AM »
I happened to catch live most of the Morgan Stanley presentation on Thursday. The recording has for some reason not been reuploaded yet, so I'm working entirely from memory here. There was a question on the dividend from the moderator towards the end. The CFO basically answered that they were not going to revise the policy until the end of the year ("as usual") due to the technical overhang and turbulence connected to the Kinnevik transaction. This is a curious thing to say if they don't plan on changing it in a negative direction, so I take this as almost complete confirmation that they will at the very least lower the dividend but most probably cut it completely.

Will this eventual "news" put even further pressure on the stock at that point? Typically the Swedish investor base is very dividend focused and companies who cut their dividend get severely punished on the day even when it was perfectly obvious beforehand that they would do so for anyone who could care to look. Most likely some former Kinnevik owners who has elected to hold onto the stock will throw in the towel on a dividend cut, especially considering the current juicy yield on historical numbers.

Of course, all this may be superceded by other events and the stock price could very well rise a lot in the interim. Who knows?       

As an aside, this answer in a circuitous way also extinguished the small hope I held out that they would do some buybacks into this recent price weakness - we will probably have to wait until next year for any buybacks. The reasoning being: why not sink the stock price even more if you are going to do repurchases?

Spekulatius

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Re: TIGO - Millicom
« Reply #24 on: November 16, 2019, 12:52:35 PM »
I guess the question is if this is really cheaper or higher quality than for example a pure play like LBTYK or MEGACPO.MX. I think especially the latter is more appealing with a pristine balance sheet no wireless exposure and trading at 6x EBITDA.

TIGO look cheap based on EBITDA, but it seems that maintenance Capex is very high and consumes most of the cash flow. It’s hard to tell for sure, with so many moving pieces though.
Life is too short for cheap beer and wine.

jgyetzer

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Re: TIGO - Millicom
« Reply #25 on: November 16, 2019, 01:56:27 PM »
I happened to catch live most of the Morgan Stanley presentation on Thursday. The recording has for some reason not been reuploaded yet, so I'm working entirely from memory here. There was a question on the dividend from the moderator towards the end. The CFO basically answered that they were not going to revise the policy until the end of the year ("as usual") due to the technical overhang and turbulence connected to the Kinnevik transaction. This is a curious thing to say if they don't plan on changing it in a negative direction, so I take this as almost complete confirmation that they will at the very least lower the dividend but most probably cut it completely.

Will this eventual "news" put even further pressure on the stock at that point? Typically the Swedish investor base is very dividend focused and companies who cut their dividend get severely punished on the day even when it was perfectly obvious beforehand that they would do so for anyone who could care to look. Most likely some former Kinnevik owners who has elected to hold onto the stock will throw in the towel on a dividend cut, especially considering the current juicy yield on historical numbers.

Of course, all this may be superceded by other events and the stock price could very well rise a lot in the interim. Who knows?       

As an aside, this answer in a circuitous way also extinguished the small hope I held out that they would do some buybacks into this recent price weakness - we will probably have to wait until next year for any buybacks. The reasoning being: why not sink the stock price even more if you are going to do repurchases?

I think you are right that a dividend cut is likely.  There are a number of reasons technical/special situation reasons to expect the stock price to continue declining.  That said, if we have figured that out, I'm sure others already have as well and so it's tough to guess at when it's "safe" to invest.  I've been buying small amounts each time it decreases since about $50.  I'll let you know when I've reached a full position so you can expect the usual 20% drop thereafter ;)

maybe4less

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Re: TIGO - Millicom
« Reply #26 on: November 16, 2019, 04:57:40 PM »
TIGO look cheap based on EBITDA

It also has a ton of mobile revenue, which probably deserves a lower multipole.

heth247

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Re: TIGO - Millicom
« Reply #27 on: November 17, 2019, 04:03:46 PM »
This is an interesting idea and I started to look at the numbers. I think they should definitely cut the dividend to zero because it is not covered by free cash flow. Looking at their numbers, for the first 9 months of 2019, they generated 252M "operating free cash flow", which by their definition, does not include interest expense. And their interest expense (they called it "finance charges") in the same period is $347M. So they had negative free cash flow of 252-347 = -95M for the 9 months in 2019. And this is before the $133M semi-annual dividend paid! 

I think the reason of negative FCF is that interest expense increased due to their recent acquisition, but the full EBITDA of the acquisition has not come in yet. But still, look at the same 9 months in 2018, their operation free cash flow is $260M, and finance charges is $229, meaning they only generated about $30M FCF for that period, before increasing the debt for acquisition in 2019. That is still not enough to cover the annual $266M of dividend.  They need to cut the dividend!

Regarding the EV/EBITDA, I think the best measure should be using the proportionate debt/ebitda, not the gross. In their 3Q financial data, they reported proportionate net debt = 5,193 (before IFRS lease adjustment), and leverage ratio = 3.14. So this implies that their LTM of "proportionate" ebitda = 5,193/3.14 = 1,653M.  Therefore, the following is my calculation of proportionate EV/EBITDA (non-IFRS):
    (5,193(proportionate net debt) + 4,150(market cap))/1653(proportionate ebitda)=5.65X

This is by using LTM EBITDA, not forward EBITDA, so not including incremental EBITDA from the acquisition. But still, I don't think that is a number that strike me as "too cheap", certainly not the 4.8X or 4.4X number that were shown on this board.  What am I missing?
« Last Edit: November 17, 2019, 04:10:50 PM by heth247 »

kab60

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Re: TIGO - Millicom
« Reply #28 on: November 17, 2019, 10:18:53 PM »
You need to look at it on a 2020-basis so the benefits of the acquisitions are in the numbers. Possibly that is the discrepancy?

I'd also expect the dividend to be cut, and then we might get a no-brainer offer.

heth247

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Re: TIGO - Millicom
« Reply #29 on: November 18, 2019, 08:53:26 AM »
You need to look at it on a 2020-basis so the benefits of the acquisitions are in the numbers. Possibly that is the discrepancy?

I'd also expect the dividend to be cut, and then we might get a no-brainer offer.

What is your estimation of their 2020 proportionate EBITDA? It needs to increase by $200MM to decrease the proportionate EV/EBITDA to 5X or below.  My point was, the proportionate EV/EBITDA is much higher than gross EV/EBITDA. The VIC write up was using the gross EV/EBITDA.