America Movil (AMX), Latin America’s largest mobile-phone carrier, beat revenue and earnings expectations for the third-quarter when it reported last week. Net income increased to $0.61 per share on top-line revenue growth of 4.5% to $14.8 billion. The report represents a strong 67% increase in net income over the same period last year, largely on an increase in data services and pay-per-view TV services. Pay-per-view television continues to be a growth engine for the company with 26% subscriber growth across the region last quarter. The company is a dominant player in Brazil and Colombia but as yet has been unable to position itself within the Mexican broadcast market.
Carlos Slim announced last week that the company would invest $1 billion on the 4G network in Colombia if regulators loosen terms to an upcoming auction. The Colombia and Panama division of the company accounted for 8.6% of revenue and was the third-most profitable market over the last quarter.
Investors may want to take a look at the shares on strong growth in consumer spending in Latin America as well as management’s aggressive push into different markets. The stock trades for 15.6 times trailing earnings and pays a 1.1% dividend yield.
I went neutral the Mexican market in August, with an article highlighting overly-bullish sentiment against week economic fundamentals. America Movil is down 2.4% since then though the general market has held up well with a gain of 5 percent. Despite the market’s general resiliency, I just cannot see paying more than 20 times earnings when other emerging markets (notably China and Russia) are trading for single-digit price multiples. With U.S. economic growth weak and some affect from the coming fiscal cliff sure to bring growth down further, Mexican asset values could fall.
A good hedge on a long position in America Movil may come from a short on the iShares MSCI Mexico Investable Market (EWW). The fund holds a large weighting in consumer staples (30.5%), Telecommunications (21.6%) and Materials (18.4%) with smaller weight across consumer discretionary, industrials and financials. The fund also allows investors access to many companies not listed as ADRs in the U.S. market. The fund pays a 1.4% dividend yield and trades for approximately 22.5 times trailing earnings. Weakness in Mexico would hit the fund harder than the more geographically-diversified American Movil.