Mobile Network Expansion And B2B Focus Will Strengthen Future Market Position

Key Takeaways

• Strategic efficiency initiatives and network expansion are driving cash flow, reducing debt, and boosting financial stability and margins.
  
• Mergers, acquisitions, and customer migration strategies are enhancing market presence, revenue growth, and profitability.
  
• Millicom's financial performance faces challenges from strategic price dependency, legal disputes, currency fluctuations, and market pressures in key regions.

Catalysts

Provides cable and mobile services in Latin America.

• Millicom's efficiency program resulted in a record equity free cash flow in 2024, facilitating debt reduction and providing a solid foundation for continued cash flow growth in 2025. This is likely to positively impact net margins and overall financial stability.
  
• The company expanded its mobile network capacity and simplified commercial offers, which is expected to drive data consumption and monetize growth through strategic price increases, benefiting service revenue and potentially improving margins.
  
• Strategies to migrate prepaid customers to postpaid and introduce convergence plans are contributing to higher ARPU and improved customer lifetime value, which should enhance revenue growth and profitability.
  
• B2B growth, supported by a robust infrastructure and an increase in digital solutions, has been strong, and with continued focus on this segment, future revenue streams are expected to diversify and grow.
  
• Millicom is executing strategic acquisitions and mergers, including potential deals in Colombia and Costa Rica, which, if completed, could enhance market presence and contribute positively to revenue and earnings growth.

Millicom International Cellular Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Millicom International Cellular's revenue will grow by 1.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.4% today to 9.8% in 3 years time.
• Analysts expect earnings to reach $599.9 million (and earnings per share of $3.79) by about March 2028, up from $256.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.5x on those 2028 earnings, down from 20.6x today. This future PE is greater than the current PE for the GB Wireless Telecom industry at 10.2x.
• Analysts expect the number of shares outstanding to decline by 0.67% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.94%, as per the Simply Wall St company report.

Millicom International Cellular Future Earnings Per Share Growth

Risks

• The dependency on strategic price increases to boost prepaid service revenue introduces uncertainties in sustaining these growth rates, which may stagnate revenue if market dynamics or customer resistance alter pricing elasticity.
  
• The ongoing legal disputes and potential adverse legal rulings pose risks that could negatively impact equity free cash flow and increase operational costs, impacting net margins and earnings.
  
• Currency fluctuations, notably the weakening Colombian peso, present a risk to revenue and EBITDA as foreign exchange impacts can erode profitability, hindering financial performance.
  
• The hyperinflation accounting adoption in Bolivia, expecting to negatively affect service revenue and EBITDA, indicates macroeconomic instability that could impair cash flow and group earnings from this region.
  
• The aggressive competitive pressures in Costa Rica and changing market conditions in Colombia threaten market share and pricing strategies, potentially affecting revenue growth and profitability in these key markets.

Valuation

• The analysts have a consensus price target of $34.196 for Millicom International Cellular based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $38.0, and the most bearish reporting a price target of just $28.36.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $6.1 billion, earnings will come to $599.9 million, and it would be trading on a PE ratio of 11.5x, assuming you use a discount rate of 6.9%.
• Given the current share price of $31.13, the analyst price target of $34.2 is 9.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.