Liberty Latin America Is A Buy For Patient Long-Term Telecom Investors

seekingalpha10-19

The thesis for Liberty Latin America is that an investment at the current attractive valuation can lead to a solid return through capital gains in the coming years.As a rule, Liberty avoids paying ...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2476756661?lang=en_US&edition=fundamental","thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1258119225/image_1258119225.jpg","is_english":true,"pubTime":"2024-10-19 15:53","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"2476756661","market":"nz","top_or_hot":-1,"title":"Liberty Latin America Is A Buy For Patient Long-Term Telecom Investors","media":"seekingalpha","content":"<div>\n<p>The thesis for Liberty Latin America is that an investment at the current attractive valuation can lead to a solid return through capital gains in the coming years.As a rule, Liberty avoids paying ...</p>\n\n<a href=\"https://seekingalpha.com/article/4727788-liberty-latin-america-is-a-buy-for-patient-long-term-telecoms-investors\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Liberty Latin America Is A Buy For Patient Long-Term Telecom Investors</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nLiberty Latin America Is A Buy For Patient Long-Term Telecom Investors\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-10-19 15:53 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4727788-liberty-latin-america-is-a-buy-for-patient-long-term-telecoms-investors><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>The thesis for Liberty Latin America is that an investment at the current attractive valuation can lead to a solid return through capital gains in the coming years.As a rule, Liberty avoids paying ...</p>\n\n<a href=\"https://seekingalpha.com/article/4727788-liberty-latin-america-is-a-buy-for-patient-long-term-telecoms-investors\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LILAK","symbol_name":"Liberty Latin America Ltd. Class C","start_time":0,"source_url":"https://seekingalpha.com/article/4727788-liberty-latin-america-is-a-buy-for-patient-long-term-telecoms-investors","article_id":"2476756661","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1258119225/image_1258119225.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2476756661","pubTimestamp":1729324425,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"The thesis for Liberty Latin America is that an investment at the current attractive valuation can lead to a solid return through capital gains in the coming years.As a rule, Liberty avoids paying div","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"LILAK":"Liberty Latin America Ltd. Class C","LILAB":"Liberty Latin America Ltd.","LILA":"Liberty Latin America Ltd. Class A","BK4559":"巴菲特持仓","BK4089":"非传统电信运营商"},"translate_title":"Liberty Latin America适合耐心的长期电信投资者","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"LILA":0.9,"LILAB":0.9,"LILAK":0.9},"content_text":"The thesis for Liberty Latin America is that an investment at the current attractive valuation can lead to a solid return through capital gains in the coming years.As a rule, Liberty avoids paying dividends, but the return should come through rising share prices when subscriber and ARPU numbers grow, debt is reduced and shares are repurchased.Investors may need patience for a return to materialize, but the Liberty way of empire building has worked before. There's little reason to doubt that it will work in Latam.   primipil/iStock via Getty Images Double challenges: Liberty and Latin America The last time I wrote about Liberty Latin America (OTCPK:LILAB) (NASDAQ:LILA) (NASDAQ:LILAK) was already over three years ago in August 2021. This was when Liberty had just acquired the Movistar assets from Telefónica in Costa Rica. Here's a link to the previous article, titled \"Liberty Latin America improves organic growth and expands in Costa Rica\". My conclusion was a \"buy\" rating for the shares. The main reasons were promising expansion-through-acquisition in Costa Rica and encouraging signs of organic growth across the entire footprint. Taken together with the low valuation and the post Covid optimism it seemed worth a buy and I bought a small long position myself as well. Looking back, I have to say that things are, so far, not working out as expected. The graph of the share price over the last five years illustrates this. The shares currently trade 30 - 40% lower than when I published the previous article in 2021. Data by YCharts As a note, for readers who are not so familiar with the various classes of shares of Liberty Latin America, there are three shares classes. LILA and LILAK are the most commonly traded shares with less voting power as the LILAB shares, but with equal economic interest in the company. The LILAB shares with more votes are for the large part held by Liberty executives to keep control of the company. The lower trading price of the shares over the last three years meant a negative return for the shareholders who've held shares from before 2022. This brings me to a first challenge for retail investors when investing in Liberty Latin America. The only return that actually can be expected is the return via capital gains through higher share prices because there's no dividend payments. The challenge is therefore to select the right moment of buying the shares. Liberty companies, as a general principle, try to avoid paying dividends as much as possible. This leaves only \"buying low and selling high\" as a way to get a return, at least for \"long only\" investors. Investors who use short trades and derivatives, such as options, have more ways to get a return, but I'll leave that out of the scope for this article. The reason why Liberty avoids paying dividends is that it's a tax inefficient way of rewarding investors. When dividends are paid out, there's dividend tax and/or corporation tax. The policy in Liberty is to minimize tax payments as much as possible. Retail investors need to be prepared to wait for a return when investing in Liberty companies, in case the shares trade at a low price for an extended period. This makes it more challenging to invest in Liberty than in any of the dividend paying telecoms, such as AT&T (T), Verizon (VZ) or Telefónica (TEF). One additional note about returns from investing in a Liberty company is that Liberty currently repurchases significant amounts of shares from the open market and reduces convertible debt. An amount of over $300M was spent on share repurchasing and debt reduction YtD 2024, buying back 12M shares so far in the year. This is a sign that the company thinks that the shares are currently undervalued, and the buyback increases the value per share for the remaining outstanding shares. This is a tailwind for future capital gains. In addition to the challenge of investing in a Liberty company without dividends, there's, in the case of Liberty Latin America, the challenges of the Latin American environment where the company operates. This environment has its separate dynamics for investors, regardless if it's telecoms or any other sector. Political risks and economic volatility in Latin America are higher than in fully developed western markets. There are even hurricanes to take into account. Liberty Latin America is still dealing with the aftermath of severe hurricane related damages in Puerto Rico. Business performance in Puerto Rico is temporarily, at least until the end of 2024, experiencing headwinds because of this. In short, retail investors are advised to be aware of the challenges of investing in any Liberty company in general, and, in the case of Liberty Latin America, specifically in less developed areas of the world. Liberty Latin America means double challenges. Better buy shares only when the valuation is low so that the risks are reflected in the share price. Investors may need to have patience for a return to materialize in case share prices remain low for longer and when there's unexpected adversity due to the unpredictable Latam environment. Investment Thesis for Liberty Latin America Now that the, perhaps more obvious, challenges and risks of investing in Liberty Latin America have been touched on above, we can turn to the thesis. Subscribers to telecom services, which are most individuals, households and businesses, faithfully pay their telecoms invoice every month. The telecom companies collect the payments and redirect part the subscription revenue to maintenance of the infrastructure, IT, value added services or to additional connections to new households and acquisition of additional subscribers. Over time, there's growing revenue and more valuable assets. Capital gains by rising share prices then also follow. Many telecoms pay out dividends, but Liberty rather focuses on the capital gains. Taking into account the proven, telecoms business model, retail investors with a diversified portfolio will likely have a couple of telecom shares in the mix because it's a straightforward, dependable investment. So, the Liberty company uses the subscription revenue to invest in infrastructure, new services and sometimes the acquisition of an adjacent telecoms company to expand the footprint. As soon as the footprint is expanded, the newly acquired households with a subscription will get the monthly invoice from Liberty instead of the previous telecoms company. Monthly revenue increases for Liberty, which provides all kinds of new opportunities: borrow more money, improve services, create new infrastructure and so on. The investment thesis for Liberty Latin America is that it's a good point in time to invest when valuation is low and there are compelling signs that value will be created. The key items to look at are subscriber numbers growth, either organic or through acquisition, and the average revenue per unit/user (ARPU). Ideally, both go up over time. To make sure that the growth of revenue through a combination of adding more subscribers and an increase in the revenue per subscriber will eventually benefit the shareholder we need to have a look at the financial statements as well. Telecom companies, and especially Liberty companies, are usually debt heavy. This is fine, but it needs to be reasonable. A look at the debt and any other points of attention is needed. If the company is financially solid, in addition to being attractively valued and has an outlook to growth, a \"buy\" rating is logical. Subscribers and ARPU trends Looking at the H1 2024 reports, the conclusion is very quickly drawn that there's at the moment a small organic subscriber growth over the footprint of Liberty Latin America. The top line item in the below table shows that 900 customer additions were obtained q/q in Q2 2024. The RGU's stands for \"Revenue Generating Units\", which can, for the purpose here, be read as \"contracts\" for a telecoms service. One customer can have more RGU's. It needs to be said that not all RGU's are equal in value, and that fixed line subscriptions and postpaid subscriptions are usually way higher value than prepaid SIM only contracts. The table shows that both fixed line and postpaid show growth. Fixed line RGU's increased by 19,300 and postpaid contracts increased by 8,100, which is both good news. So, there are small increases across the board, but, to be fair, the additions are lower than in the previous quarter and the most gains are in prepaid mobile subscriptions, which are lower value than other contracts.   LILA operating highlights (H1 2024 earnings report LILA) The largest subsidiary of Liberty Latin America is Cable & Wireless, with operations in the Caribbean and Panama. The subscriber additions were positive across all services for C&W, where Panama is the growth market that compensates for the declines in the Caribbean area. Costa Rica is the other growth area, where the key success is the rise in postpaid mobile subscribers that offsets the decline in prepaid. Puerto Rico has seen some declines in the last quarter. This is partly due to the fallout of the hurricane Beryl. The ARPU table below shows that there's hardly any significant changes in this measure across the footprint and across fixed and mobile services. The only exception is the rise of 8% in mobile ARPU in Panama, the other numbers look stable.   LILAB ARPU H1 2024 (LILAB H1 2024 Earnings report) The conclusion from the subscriber growth and ARPU numbers is that there's a small growth in subscribers with largely flat ARPU. This leads to slow overall revenue growth for the company. Liberty Latin America reported a 2% q/q rise in total revenue, which confirms the conclusion. Growth Through Acquisition in Costa Rica Next to organic growth, Liberty Latin America also looks at dealmaking to grow the business. The most important recent deal to mention is the agreement to merge Liberty Costa Rica with Millicom's (TIGO) operations in that country. This marks a next step in the consolidation in the Costa Rican telecoms market after Liberty bought Movistar there in 2021. This next deal is expected to close in H2 2025. Liberty Costa Rica will own 86% of the merged entity that had an annual combined OIBDA of $255M in 2023. The combination of the two businesses allow for further growth in Costa Rica. Cross-selling of products is a growth path and the bigger business allows more investments in fiber. Valuation and financial points of attention As a matter of personal preference, I like to look at EV/EBITDA as a measure of valuation. At the time of writing, this hovers around 6x. In my opinion, this is a logical point and an attractive one for buying shares, as it's only somewhat more expensive than true emerging market telco's, that often trade at 2 - 4x, but it's way cheaper than developed market telco's, that can trade at 10x or higher. In comparison with three years ago, the total debt has decreased from $8.9B to $8.1B at the moment. This is prudent because interest rates are higher now and interest expenses need to be managed when debt is taken on or refinanced. It's also a large reduction in three years. It means that the company is actively managing and reducing debt. It means that there's a growing room for further investments, too. To revert back to the point about Liberty not paying dividends, it's a good alternative use of cash to reduce debt and repurchase shares. Eventually, this leads to returns for investors, too. Management has committed to keep using cash to reduce share count when prices are low, so this provides a tailwind for the share price going forward. The intention is to repurchase up to 6 million shares more over the next six quarters. Together with the 12 million shares that have already been repurchased in 2024, this should equate to a high single digit percentage (5-10%) of the entire market cap of the company! That's not a bad return at all. Outlook and Exit prospects The outlook for the coming quarters or even years is that Liberty Latin America will build out the business as Liberty has done in the last decades. Quarter by quarter, the organic growth, sometimes fast, sometimes slow, will add value to the assets. More deals can be expected to add to the extensive footprint that Liberty Latin America is overseeing. The following image can illustrate this:   LILA subsea network (LILA investor presentation) The cable network that is a basis for further growth spans regions from the US too deep in South America. It may be a volatile road ahead with occasional political turmoil, hurricanes or even an acquisition deal that falls through at times, but there are plenty of opportunities to expand services over such as vast region. It's a matter of taking the right steps every quarter to improve the assets and tackle the expansion opportunities one by one. Liberty has done that for the past decades in the US and in Europe, and will keep doing that in Latam for the coming years. Retail investors who have the patience for this can definitely consider buying the shares at current price levels. For investors that start a position now, they pay slightly over 6x EBITDA for a stake, which is a very reasonable price in my opinion. The return on the investment will not come from predictable dividend payouts, but from a combination of lower debt, increased value of the telecoms assets through growth of subscribers and ARPU, and share repurchases. It's not possible to say exactly when an exit at a profitable level arrives, but I've little doubt that it will. Conclusion and Takeaway for the Investor Liberty Latin America follows the same empire building dynamics as Liberty has managed through Liberty Global (LBTYA) (LBTYB) (LBTYK) in Europe over the past decades, when they expanded cable operations step-by-step to over 10 European countries. Liberty management has been using the same methods in the US for decades as well. It's like a \"flywheel\". The growth in revenue from subscribers and RGU additions in combination with rising ARPU enables further investments and expansion. This leads to growing revenue and so on. Costa Rica has had plenty of attention over recent years, but there are more countries that are easily reached by the expansive Liberty cable network that connects large parts of the region. Patient long-term telecoms investors can benefit from the returns that the flywheel will bring when these regions are developed to their full potential and when new mergers and acquisitions are set up.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2476756661"}