Millicom Is Undervalued
Its increasing scale provides opportunities for future growth.
We are encouraged by Millicom International Cellular’s (MIICF)/(MIC SDB) first-quarter results and believe the shares are significantly undervalued. However, just as previous quarterly results were hit badly by negative currency movements, this latest quarter benefited from positive currency movements, making the initial results look better than reality. Reported revenue grew 0.4% year over year, but adjusting for currency and acquisitions, it declined 2.2% versus our full-year projection of a slight decline. We do expect improvement in underlying results throughout the year. Thus, we are maintaining our fair value estimate and narrow moat rating.
The most important item, in our eyes, is the continued expansion of Millicom’s convergence program. On this front, the company is making steady progress. It expanded its cable footprint by passing a record 370,000 homes in the quarter and now passes 8.4 million in total. This increasing scale provides opportunities for future growth. Additionally, the firm continues to expand its 4G coverage. It added 400,000 4G customers in the quarter, taking its 4G subscriber base to 3.8 million. 4G customers tend to have average revenue per user levels that are more than twice those of other subscribers. As Millicom converts its wireless customer base to 4G, its ARPU should increase and add to revenue growth. Overall data usage increased about 20%, but this is being offset in most countries by continued declines in voice and SMS revenue. In Colombia and Bolivia, data revenue now exceeds voice and SMS revenue, and others are moving in this direction, which makes data growth increasingly meaningful.
Allan C. Nichols does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.