Stock Analysis

Returns On Capital At Millicom International Cellular (NASDAQ:TIGO) Have Hit The Brakes

  •  Updated
NasdaqGS:TIGO
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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Millicom International Cellular (NASDAQ:TIGO) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Millicom International Cellular, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.065 = US$795m ÷ (US$14b - US$2.0b) (Based on the trailing twelve months to June 2022).

Thus, Millicom International Cellular has an ROCE of 6.5%. Even though it's in line with the industry average of 6.1%, it's still a low return by itself.

View our latest analysis for Millicom International Cellular

roce
NasdaqGS:TIGO Return on Capital Employed September 26th 2022

In the above chart we have measured Millicom International Cellular's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

In terms of Millicom International Cellular's historical ROCE trend, it doesn't exactly demand attention. Over the past five years, ROCE has remained relatively flat at around 6.5% and the business has deployed 71% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

In Conclusion...

As we've seen above, Millicom International Cellular's returns on capital haven't increased but it is reinvesting in the business. It seems that investors have little hope of these trends getting any better and that may have partly contributed to the stock collapsing 75% in the last five years. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

One final note, you should learn about the 3 warning signs we've spotted with Millicom International Cellular (including 2 which are a bit unpleasant) .

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

What are the risks and opportunities for Millicom International Cellular?

Millicom International Cellular S.A. provides cable and mobile services in Latin America and Africa.

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Rewards

  • Trading at 77% below our estimate of its fair value

  • Earnings are forecast to grow 19.54% per year

  • Became profitable this year

Risks

  • Interest payments are not well covered by earnings

  • Shareholders have been substantially diluted in the past year

  • Large one-off items impacting financial results

View all Risks and Rewards

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Millicom International Cellular

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About NasdaqGS:TIGO

Millicom International Cellular

Millicom International Cellular S.A. provides cable and mobile services in Latin America and Africa.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation5
Future Growth2
Past Performance2
Financial Health1
Dividends0

Read more about these checks in the individual report sections or in our analysis model.

Undervalued with limited growth.