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A Hidden Gem At Liberty Latin America


  • New management is executing on its bold strategy to sharply turn around this cable/mobile operator, and then roll up the industry.
  • The company will close on its first highly accretive acquisition, AT&T Puerto Rico, in mid 2020. The stock was up 10% on the news, not nearly enough.
  • The turnaround is working. After years of negative FCF, the company achieved positive FCF in 2018, grew to $223 million in 2019, and now boasts an 8.1% FCF yield.
  • 2020 FCF guidance of $150 million (which excludes contributions from AT&T assets) grossly understates the company's current cash generating power, which is roughly $300 million today and heading much higher.
  • They're holding an extra $2 billion of debt, with annual interest ~$125 million, to fund the upcoming acquisition. Guidance includes this interest expense, but nothing from the assets being acquired.

Liberty Latin America (NASDAQ:LILA) is a cable and mobile operator in Puerto Rico, Chile, Panama, Costa Rica, and the Caribbean, and also owns an extensive subsea and terrestrial fiber optic cable network that connects over 40 markets in the region. LILA is typically the number one or two player in all their markets. The company was spun out of cable giant Liberty Global (LBTYK) a few years ago, where under previous management it had acquired and grossly overpaid for Cable & Wireless Communications (C&W), sending the stock price into an extended swoon. This only got worse when Hurricane Maria devastated Puerto Rico in September 2017, disrupting one of the company's best markets.

Current CEO Balan Nair left his position as chief technology officer at cable giant Liberty Global and took the reins at LILA on October 2017. He immediately introduced a bold vision for the company. First, by deploying industry best practices, the company would turn itself into a growing FCF machine. And second, he would attempt to roll up the industry in the region with highly accretive targets. Synergies can be a dirty word in the minds of some investors, but in the cable space they are very real.

Both the turnaround and the roll up have begun, as can be seen in the company's Q4 2019 earnings call presentation. The turnaround is evident in their consistent strong gains in cable and mobile subscribers, the return to operating cash flow (OCF) growth, and the strong FCF generated. The first major element of what may prove to be an ongoing series of highly accretive acquisitions, which will close in mid 2020, is their $1.95 billion purchase of AT&T Puerto Rico. The company paid a "mid 6's multiple" on OCF for this business excluding synergies, and low 5's including them.


This article was written by

Value and deep value top ideas
My handle is the Michigan Value Investor, but everyone calls me MVI. I have a PhD in theoretical physics from UC Berkeley and worked briefly in the field before switching my interests to investing. I worked as an analyst at a billion dollar fund for several years before starting my own very small fund in 2009. During this time I have developed a group of stocks that I understand well, and I have excellent relations with management in many cases. This long standing familiarity with a select group of companies means I have a pool of investable ideas available to me where I don’t have to take time to get up to speed.

I first became interested in investing when I read an article about Warren Buffett, and my investing style reflects his teachings and those of Charlie Munger. Unlike many value investors, I am not impressed with Ben Graham as an investor.

Analyst’s Disclosure: I am/we are long LILA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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