“Overall, we believe that through our operational and inorganic progress, we are set to deliver meaningful adjusted free cash flow growth in the coming years, particularly as synergies are achieved. And it is hard to contemplate any M&A with better risk-adjusted returns than the current opportunity to repurchase our own securities
Hi, thanks for reaching out and glad you enjoyed it.
I agree 100% with your/Balan's comments about PR, Costa Rica, Panama being tough markets to enter for outsiders because there are already a few rational players there and these markets just aren't big enough for anyone with the funds to enter from scratch. This is why I believe LILAK and TIGO are both competitively advantaged over most deeveloped world peers and should be able to enjoy semi-oligopilistic conditions going forward. I hope they have learnt from Chile after successfully plugging the hole there and Balan has commented that he hopes to see further consolidation there. I agree that a higher cost of capital might also make it tougher for a new entrant.
I'm sorry I can't give you an exact number on the hurricane damage bill, but they had an insurance pay-out of $108.5m- obviously much less than the losses they incurred. They have extensive insurances through-out the business and are obsessive about managing things like this, but there's no denying another hurricane of that intensity would be a disaster. However, I do think it's in the valuation and then some. I assume full ops in Puerto Rico in the target price I give, but my point is that LILAK is so undervalued that there is such a large margin for things to go wrong and still do extremely well out of the investment. It wouldn't be pleasant, but they would survive it imo.
When I say cycle, I mean the cycle that has seen EM investments and currencies shunned in relation to the US and widen to historical levels over the last decade. I believe/hope we are near the bottom of this and that EM will see inflows and much higher valuations at some point over the next decade. I don't know when, but my intent is somewhere around 5-10 years away.
Really appreciate the write-up. Thanks. A few question if I may, starting with the most important one:
What are your thoughts on how they prevent what happened in Chile (6 to 7 players coming in), happening elsewhere? I am aware of the following quote from Balan Nair but thought I would get your thoughts as it suggests there could be a serious issue with pricing power (will/has an end of cheap capital meant this will be prevented?): "To your second question around is this a contagion that can spread elsewhere? We've looked at every one of our other markets, and we don't see anywhere else going to a 6 or 7 player market on the fixed side. And certainly, we've learned a couple of things as well to be ahead of the game before it becomes a 6-7 player market in any other location. So if you look at Costa Rica or Puerto Rico, these are 4 million type population centers, Costa Rica, slightly north of that, about $5 million; Puerto Rico, about $3 million to $4 million, Panama about $4 million. These are smaller geographies that won't attract 6 to 7 player competitors. So we feel relatively confident."
How much in the past did they spend on the repairs on the back of the terrible Puerto Rico hurricane? Should the fact that such a hurricane may happen again be considered in their valuation? Have they made any efforts to prevent future issues like this, for eg insurance?
You mention that they should be re-rated much higher in the next cycle. Can you define this "cycle" and when will it be?
Obviously the increasing fcf and buyback may act as a catalyst and a possible sale of the subsea asset.
It certainly appears private market value for these assets are much higher than public.
Whenever they talk about their FCF they mention distributions to partners. Please forgive my ignorance but what does this "distribution to partners" mean? Does it mean that not all the FCF goes to shareholders? For q2 adjusted FCF they give $31m, they then mention $41m distribution to partners and give a total of $72m before distributions. Thanks.
Lilak reminds me a bit of Arcos Dorados, another LatAm company with high debt levels and currency mismatches that eventually managed to deal with them.
12x EV/EBIT doesn't sounds wrong necessarily, though perhaps there's hidden asset value in that subsea cable network?
Hi, thanks for reaching out and glad you enjoyed it.
I agree 100% with your/Balan's comments about PR, Costa Rica, Panama being tough markets to enter for outsiders because there are already a few rational players there and these markets just aren't big enough for anyone with the funds to enter from scratch. This is why I believe LILAK and TIGO are both competitively advantaged over most deeveloped world peers and should be able to enjoy semi-oligopilistic conditions going forward. I hope they have learnt from Chile after successfully plugging the hole there and Balan has commented that he hopes to see further consolidation there. I agree that a higher cost of capital might also make it tougher for a new entrant.
I'm sorry I can't give you an exact number on the hurricane damage bill, but they had an insurance pay-out of $108.5m- obviously much less than the losses they incurred. They have extensive insurances through-out the business and are obsessive about managing things like this, but there's no denying another hurricane of that intensity would be a disaster. However, I do think it's in the valuation and then some. I assume full ops in Puerto Rico in the target price I give, but my point is that LILAK is so undervalued that there is such a large margin for things to go wrong and still do extremely well out of the investment. It wouldn't be pleasant, but they would survive it imo.
When I say cycle, I mean the cycle that has seen EM investments and currencies shunned in relation to the US and widen to historical levels over the last decade. I believe/hope we are near the bottom of this and that EM will see inflows and much higher valuations at some point over the next decade. I don't know when, but my intent is somewhere around 5-10 years away.
Hope that helps,
Guy
Really appreciate the write-up. Thanks. A few question if I may, starting with the most important one:
What are your thoughts on how they prevent what happened in Chile (6 to 7 players coming in), happening elsewhere? I am aware of the following quote from Balan Nair but thought I would get your thoughts as it suggests there could be a serious issue with pricing power (will/has an end of cheap capital meant this will be prevented?): "To your second question around is this a contagion that can spread elsewhere? We've looked at every one of our other markets, and we don't see anywhere else going to a 6 or 7 player market on the fixed side. And certainly, we've learned a couple of things as well to be ahead of the game before it becomes a 6-7 player market in any other location. So if you look at Costa Rica or Puerto Rico, these are 4 million type population centers, Costa Rica, slightly north of that, about $5 million; Puerto Rico, about $3 million to $4 million, Panama about $4 million. These are smaller geographies that won't attract 6 to 7 player competitors. So we feel relatively confident."
How much in the past did they spend on the repairs on the back of the terrible Puerto Rico hurricane? Should the fact that such a hurricane may happen again be considered in their valuation? Have they made any efforts to prevent future issues like this, for eg insurance?
You mention that they should be re-rated much higher in the next cycle. Can you define this "cycle" and when will it be?
Obviously the increasing fcf and buyback may act as a catalyst and a possible sale of the subsea asset.
It certainly appears private market value for these assets are much higher than public.
Thanks
Hey
Whenever they talk about their FCF they mention distributions to partners. Please forgive my ignorance but what does this "distribution to partners" mean? Does it mean that not all the FCF goes to shareholders? For q2 adjusted FCF they give $31m, they then mention $41m distribution to partners and give a total of $72m before distributions. Thanks.
Lilak reminds me a bit of Arcos Dorados, another LatAm company with high debt levels and currency mismatches that eventually managed to deal with them.
12x EV/EBIT doesn't sounds wrong necessarily, though perhaps there's hidden asset value in that subsea cable network?