Millicom Earnings: Disappointing Results in Colombia and Guatemala, Patience Required

Millicom TIGO SDB showed some signs of improvement during the third quarter. Recently appointed president and COO Maxime Lombardini also provided initial thoughts on the company, indicating that operating efficiency and debt reduction are top priorities. Lombardini formerly served as the CEO of Iliad, whose founder, Xavier Niel, is now Millicom’s largest shareholder. We expect his influence will lead to changes in Millicom’s operations, including potential divestitures or capital infusions. We are leaving our fair value estimate at $30. We believe the firm holds attractive operations in several countries, but the path ahead remains highly uncertain.

The firm’s operations in Colombia and Guatemala have been key trouble areas. The Colombian telecom market is generally unattractive, especially given Millicom’s small size. The firm has lost nearly 10% of its fixed-line customers over the past year and has grown its wireless customer base only 1% year over year. Management has been disciplined with pricing and has worked to cut costs, though, which lifted EBITDA nearly 20% versus a year ago, excluding a legal charge. Even with that improvement, the business is still burning cash, which forced Millicom and its co-owner in Colombia to inject additional capital into the market. The plan to combine networks with Telefonica’s Colombian business has received regulatory approval, which should improve operating efficiency for both firms in the long term.

Guatemala is Millicom’s most important market. Service revenue in the country declined 2.7% year over year, a bit better than last quarter. More importantly, Millicom increased prepaid wireless prices in September, the first sign that competition from America Movil, the only other major carrier in the country, may be easing. Movil stated on its earnings call that it isn’t being as aggressive in Guatemala and is not cutting prices. Profitability in Guatemala remains strong, with the EBITDA margin holding steady at 52%.