Millicom Earnings: A Busy Week Overshadowed Another Big Jump in Profitability

Millicom reported solid second-quarter results to cap a busy week. The firm announced that it has entered a nonbinding agreement to acquire Telefonica’s operation in Colombia and plans to merge its Costa Rican operations with Liber Latin America’s. These moves come as Xavier Niel’s Atlas increased its offer to buy the 71% of Millicom that it doesn’t own to $25.75 per share from $24, which we believe still undervalues the firm. We don’t expect to significantly change our $34 per share fair value estimate, with downside risk if Atlas succeeds in taking the firm over at a discount, balanced against upside potential should recent restructuring efforts deliver durable margin gains. Aggressive cost-cutting can backfire in the telecom business if customer service suffers or if competition becomes more aggressive.