On Millicom Cellular's Mixed Results

Feb.14.08 | About: Millicom International (MIICF)

I've reduced Millicom International Cellular (MICC) going into earnings (as I've done with many stocks), and the results are an interesting mix. This is one of the few companies I can find to directly play Africa & "non Brazil" South America, so I decided to add it to the mix a few months ago [Nov 7 - Starting a Position in Millicom International Cellular (MICC)], and thus far it has performed quite well in a terrible market. Looks like the unit growth in cell subscribers continues to be outstanding, but at the expense of some near term profitability. 

I don't have a problem with that; it is quite normal but investors who are normally very short sighted and only care about "beating the number" and nothing else, usually don't like it. Thankfully, Millicom is a very unknown name and not full of daytraders and momentum traders so it should weather the "disappointment" better than if this were a more well known stock, chock full of people whose idea of long term is "tomorrow". The other issue is, in dealing in a lot of small countries (and a lot of unstable countries) there is always country specific risk for a company like this.

  • Mobile operator Millicom International's (MICC) unexpectedly large rise in new subscribers offset disappointment over lower-than-expected fourth-quarter core earnings on Wednesday.
  • A record net intake of new subscribers during the seasonally strong quarter took its subscriber base to 23.4 million at the end of last year from 20 million at the end of the third quarter and against analyst expectations of a rise to 22.3 million.
  • "The result was lower than expected, but the inflow of new customers in the fourth quarter was incredibly strong, and that must be allowed to cost money," said one analyst.
  • Earnings before interest, tax, depreciation and amortisation (EBITDA), excluding discontinued operations, were $307 million, up from $229 million a year earlier but below a mean forecast for $328 million in a Reuters survey.
  • "The weak result could be explained to a large extent by the strong subscriber growth. Overall, this is marginally worse than expected," Redeye analyst Urban Ekelund said.
  • The firm said its revenues in the quarter rose to $786 million from a year-ago $544 million, topping the $753 million average in the survey of nine analysts.
  • "The strong growth recorded in the fourth quarter of 2007 demonstrates the gathering momentum within the businesses," the firm said in the results statement. And the group said it planned a dividend for 2007 and was considering further payouts. Millicom said it planned to pay $2.40 per share in a special dividend for the 2007 fiscal year, reflecting the firm's sale of its stake in Pakistani Paktel Ltd. to China Mobile Communications Corp. for $284 million early last year.
  • Millicom, which runs mobile telecom services in emerging markets across the world, said its units in Central America posted a 71 percent increase in subscribers for the full year. In Africa, subscriber growth was 66 percent in 2007, with one million new customers added in the three final months of that year, the first time that had happened, the firm said.
  • But margins were hit in Africa by the business in Chad, where the firm was forced to shut down its network in January due to a rebel attack on the capital N'Djamena. Millicom said its staff were safe and the network undamaged, and that it would resume its operations in Chad 'imminently'.
  • "The dividend was a bonus, but at the same time what's happening in Chad, where they had to shut down, and the regulatory changes in Colombia, is worrying," an analyst said.
  • Interconnect fees were halved in Colombia to $0.06 in December, which the company said would hit its margins and revenues in the country.
Disclosure: Long Millicom Cellular in fund; no personal position