Legacy Revenue Erosion And High Capex Will Worsen Telecom Strains

Key Takeaways

• Migration to digital services, low-priced competition, and heavy capital needs are eroding legacy profits and squeezing margins despite network investments.
  
• Currency volatility, economic instability, and rising regulatory demands are undermining growth prospects and limiting financial and operational flexibility.
  
• Expansion into postpaid, digital, and B2B markets, alongside efficiency gains and strategic acquisitions, is strengthening Millicom's growth prospects, margin resilience, and market diversification.

Catalysts

Provides cable and mobile services in Latin America.

• Future revenue growth is likely to be muted due to the rapid global shift from traditional telecom services like voice and SMS to digital-first, over-the-top messaging and communications platforms, which will continue to erode high-margin legacy revenues even as Millicom migrates customers to postpaid and invests heavily in network upgrades.
  
• Structural FX headwinds and persistent local economic instability in key Latin American markets, particularly in Bolivia, Paraguay, and Honduras, are expected to continue impacting consolidated revenue and reported earnings, undermining operational gains and making the company's financial results highly vulnerable to further currency devaluations.
  
• Intense market competition from both established telecom operators and aggressive new digital entrants is likely to persist, resulting in price wars and ARPU compression; recent moves by competitors, such as Telefonica and WOM launching extremely low-priced unlimited offers in Colombia, foreshadow prolonged margin pressure and a race to the bottom for service pricing.
  
• The necessity for ongoing, high capital expenditures to sustain 4G and future 5G network rollouts-driven by the rapid technological evolution and the need to keep pace with device adoption-will structurally outstrip organic revenue growth, suppressing free cash flow generation and putting downward pressure on net margins.
  
• Heightened regulatory hurdles and more stringent consumer privacy requirements across Millicom's operating regions will drive up compliance costs, restrict the ability to monetize customer data, and limit opportunities for new revenue streams, thereby weighing on mid
• to long-term earnings and operational flexibility.

Millicom International Cellular Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Millicom International Cellular compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Millicom International Cellular's revenue will decrease by 1.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 17.0% today to 8.9% in 3 years time.
• The bearish analysts expect earnings to reach $515.5 million (and earnings per share of $2.78) by about August 2028, down from $955.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 13.1x on those 2028 earnings, up from 7.7x today. This future PE is lower than the current PE for the GB Wireless Telecom industry at 22.7x.
• Analysts expect the number of shares outstanding to decline by 2.6% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.8%, as per the Simply Wall St company report.

Millicom International Cellular Future Earnings Per Share Growth

Risks

• Accelerating migration from prepaid to postpaid customers, supported by targeted network expansion and coverage, is driving significant ARPU uplift and expanding customer lifetime value, which can raise both revenues and margins over time.
  
• Sustained growth in digital services and B2B solutions, evidenced by double-digit growth in digital and rising SME penetration, positions Millicom to benefit from the ongoing secular shift toward enterprise and digital transformation, improving revenue diversification and supporting higher overall top-line growth.
  
• Operational leverage and rigorous cost optimization have materially improved adjusted EBITDA margins, with five out of nine country operations exceeding 50% margins, and continued digitalization and adoption of AI further enhancing long-term margin resilience and net earnings.
  
• Ongoing M&A activity, including acquisitions in Uruguay, Ecuador, and a pending integration with Coltel in Colombia, is increasing the company's market diversity, reducing reliance on any single country, and creating opportunities for synergies that can support both revenue growth and free cash flow generation.
  
• Millicom's disciplined capital deployment into fiber and convergence, focus on delivering premium broadband experiences, and an improving balance sheet with leverage below 2.5 times are building a solid financial foundation for sustainable growth in net profits and the ability to return value to shareholders.

Valuation

• The assumed bearish price target for Millicom International Cellular is $36.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Millicom International Cellular's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $55.0, and the most bearish reporting a price target of just $36.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $5.8 billion, earnings will come to $515.5 million, and it would be trading on a PE ratio of 13.1x, assuming you use a discount rate of 6.8%.
• Given the current share price of $44.15, the bearish analyst price target of $36.0 is 22.6% lower.
• 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.