America Movil Attractive Even After Disappointing Quarter
We still believe this telecom is a means to benefit from economic growth across Latin America.
America Movil's (AMX)/(AMOV) first-quarter results were disappointing. Increased competition in Mexico and Colombia and continued economic and currency volatility cut into revenue and margins. Brazil was the most significant relative bright spot in the quarter, with revenue per wireless customer stabilizing, fixed-line revenue growing nicely, and margins expanding despite the country's continued economic weakness. We continue to believe Movil holds a solid competitive position across Latin America worthy of a narrow economic moat, but the revenue pressure seen this quarter is too big to brush aside. We have reduced our fair value estimate to $18 per ADR from $20, though we still believe the shares are attractively priced.
The first quarter was a mess in Mexico. Movil shed 202,000 net wireless customers, its first quarterly loss in more than a year, despite matching the aggressive promotions that competitors have put into the market. These promotions produced an 11% sequential drop in average revenue per wireless customer (15% year over year). At MXP 133 per month (about $7.50), average revenue per user has declined 25% over the past four years even as the proportion of postpaid customers in Movil's base has expanded to 16% from 12%. Telefonica (TEF) and AT&T (T) gained share during the quarter, and while both also saw a decline in ARPU, the pace (each down 7% sequentially) was slower than at Movil. While we don't believe these rivals can price aggressively indefinitely, the sharp ARPU drop at Movil is a cause for concern.
Michael Hodel does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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