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Signum Research

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Joaquín Sánchez

Joaquin Sanchez, CFA
19.jun.18

Signum Perspectives

BREAKFAST WITH AMX’S MANAGEMENT

On June 12 we had a breakfast meeting with the CEO and CFO of América Móvil.

A friendlier regulatory environment - AMX believes that the most important regulatory changes have already taken place in countries like Mexico, Brazil and Colombia, which means the company should face a more stable regulatory environment going forward.

Business data growth – The company expects the penetration of Smartphones in Latin America to increase from the current level of 65% to 71% by the end of 2020. Furthermore, data is being increasingly used in all segments. For example, data use in Mexico grew 3.5 times between 2016-I and 2018-I. The company believes that the pre-pay segment will experience exponential data growth in the coming years.

4.5 G Technology – By the end of the year, AMX will have 4.5G technology available in all countries where it operates. This technology has greater capacity, up to 1 Gbps in Mexico, and lower latency giving the company a clear competitive edge.

Greater profitability in Mexico and Brazil – AMX expects its margins to expand to by around four percentage points in Mexico and Brazil in the coming years on the back of strong growth in business data and the cost reduction program. Mexico is also set to benefit from a friendlier competitive environment and interconnection charges, while Brazil should benefit from economies of scale and a macroeconomic recovery.

Cost and expense reduction program – This program includes new agreements with its main suppliers, headcount reduction and the implementation of new technologies.

Stable U.S. margins – TracFone operations faced greater competition and lower growth last year. However, revenues began to grow again in Q417, which was an inflection point. Margins decreased in response to higher growth and management expects them to remain at the same levels of 7-8% going forward.

Focus on debt reduction – The company expects to lower debt by US$3 bn during the rest of the year by paying upcoming debt maturities. It expects the net debt to EBITDA ratio to reach the 1.5x target by mid 2019 at the latest.

Possible dividends – Once AMX meets its debt reduction objective, it will begin to repurchase its own shares aggressively, as in the past. It does not rule out larger dividend payments.

Mergers and acquisitions – AMX only plans to acquire other small operators in Eastern Europe that complement its current operations. Regarding the Brazilian company Oi, they are not interested in its fixed operations or wireless network, which needs to be updated. AMX confirmed that it is interested in Oi’s mobile subscribers, but any acquisition will be difficult.

CAPEX – AMX reiterated 2018 Capex guidance of around US$8 bn. Furthermore, investments will depend on whether the company decides to increase the number of homes passed.

Final remarks – Following the meeting with AMX’s management we are even more upbeat about the company due to strong business data growth. Furthermore, expected margin expansion is above our projections. We therefore maintain our BUY rating with a target price of P$19.50 per share.



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