DKosig
The following segment was excerpted from this fund letter.
Millicom International Cellular S.A (NASDAQ:TIGO): Telecom/Transaction Processing Theme
Within this theme, the increasing use of transaction processing in the markets of our respective firms, as well as the rollout of fiber-optic and 5G networks, is providing growth opportunities.
Given that most of these firms are holding companies and have multiple components of value (including real estate), the timeline for realization may be longer than for more mono-industry-focused firms. Most of these firms have been strong given their continued growth in telecom and processing revenues.
TIGO is a Latin American telecommunications firm that provides high-speed internet, cable, and wireless to nine markets. The firm has a #1 or #2 position in eight of these markets. TIGO is also in the process of separating both its towers business (about 10,000 towers) and its TIGO Money business for either sale or co-investment.
Based upon historical tower sales by TIGO and comparable transactions and trading prices for Latin American tower businesses, we think the towers are worth about $1.4 billion or $8.00 per share. Given the current price of TIGO, the stub has an implied value of about 5.7x 2022 FCF or 1.5x projected 2026 FCF.
Given the liquidity from recent rights offering, TIGO’s debt level is low, and the company will be in the position to buy back shares next year while continuing to invest in its fiber rollout. There is additional value outside the core business in TIGO’s data centers and TIGO Money (see our case study in the Q3 2021 letter).
Given a conservative projected EPS growth of 10% per year (vs. the 25% projected FCF growth rate), TIGO should trade at 22x earnings using Graham’s formula of 8.5 + 2 * growth rate. Applying this multiple results in about a 2.5x return today and a 7x return in five years. Below is an updated value of TIGO’s equity given the rights offering, management’s current forecast to 2024, and no value for TIGO’s data centers or TIGO Money.
|
TIGO |
|||||||||||||||||
|
5-yr FCF Growth |
24.8% |
||||||||||||||||
|
2021 |
2022 |
2023 |
2024 |
2025 |
2026 |
2027 |
2028 |
2029 |
$13.58 |
1.456851 |
5-yr fwd FCF |
10% growth PE |
|||||
|
17.6% |
5.68088 |
Earnings/FCF Yield |
21.9 |
||||||||||||||
|
Revs (prop) |
$5,468 |
$5,746 |
$6,047 |
$6,373 |
$6,726 |
$7,108 |
$7,522 |
$7,972 |
$8,462 |
||||||||
|
5.1% |
5.2% |
5.4% |
5.5% |
5.7% |
5.8% |
6.0% |
6.1% |
High Single digit growth of cable |
8.0% |
39% |
3.09% |
||||||
|
Low Single digit growth of mobile |
2.0% |
61% |
1.23% |
||||||||||||||
|
EBITDA |
$2,232 |
$2,356 |
$2,510 |
$2,677 |
$2,858 |
$3,056 |
0.5% Economy of scale growth |
4.32% |
|||||||||
|
40.8% |
41.0% |
41.5% |
42.0% |
42.5% |
43.0% |
||||||||||||
|
FCF (prop) |
$225 |
$175 |
$300 |
$425 |
$500 |
$640 |
$715 |
$797 |
$888 |
Shares |
176.3 |
$2,394.15 |
$92.71 |
||||
|
4.1% |
3.0% |
5.0% |
6.7% |
8.9% |
9.0% |
9.5% |
10.0% |
10.5% |
Towers |
$1,400.00 |
$7.94 |
47% |
|||||
|
$994.15 |
|||||||||||||||||
|
FCF/Sh |
$1.28 |
$0.99 |
$1.70 |
$2.45 |
$2.95 |
$3.87 |
$4.46 |
$5.14 |
$5.93 |
||||||||
|
-22.2% |
71.4% |
44.1% |
20.3% |
31.2% |
15.1% |
15.2% |
15.4% |
||||||||||
|
Revs |
Growth |
||||||||||||||||
|
Mobile |
$3,354 |
$3,421 |
$3,489 |
$3,559 |
$3,630 |
$3,703 |
$3,777 |
$3,852 |
$3,929 |
2.0% |
|||||||
|
HFC |
$2,114 |
$2,326 |
$2,558 |
$2,814 |
$3,095 |
$3,405 |
$3,746 |
$4,120 |
$4,532 |
10.0% |
$30.17 |
$17.01 |
|||||
|
$5,468 |
$5,746 |
$6,047 |
$6,373 |
$6,726 |
$7,108 |
$7,522 |
$7,972 |
$8,462 |
|||||||||
|
5.1% |
5.2% |
5.4% |
5.5% |
5.7% |
5.8% |
6.0% |
6.1% |
||||||||||
|
Buyback Model |
|||||||||||||||||
|
176.3 |
176.3 |
176.3 |
173.3 |
169.4 |
165.3 |
160.3 |
155.2 |
149.9 |
Shares Outstanding (net buyback) |
||||||||
|
50% |
0.00 |
0.00 |
3.00 |
3.86 |
4.17 |
4.92 |
5.10 |
5.31 |
5.55 |
FCF Buyback % |
|||||||
|
40 |
45 |
50 |
55 |
60 |
65 |
70 |
75 |
80 |
Assumed Share Price |
||||||||
DisclaimerThis letter does not contain all the information that is material to a prospective investor in the Bonhoeffer Fund, LP (the “Fund”). Not an Offer: The information set forth in this letter is being made available to generally describe the philosophies of the Fund. The letter does not constitute an offer, solicitation, or recommendation to sell, or an offer to buy any securities, investment products, or investment advisory services. Such an offer may only be made to accredited investors by means of delivery of a confidential private placement memorandum, or other similar materials that contain a description of material terms relating to such investment. The information published and the opinions expressed herein are provided for informational purposes only. No Advice: Nothing contained herein constitutes financial, legal, tax, or other advice. The Fund makes no representation that the information and opinions expressed herein are accurate, complete, or current. The information contained herein is current as of the date hereof but may become outdated or change. Risks: An investment in the Fund is speculative due to a variety of risks and considerations as detailed in the confidential private placement memorandum of the Fund, and this letter is qualified in its entirety by the more complete information contained therein and in the related subscription materials. No Recommendation: The mention of or reference to specific companies, strategies, or instruments in this letter should not be interpreted as a recommendation or opinion that you should make any purchase or sale or participate in any transaction. |
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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