If you are wondering why the stock is rising this morning, here's a hypothesis: Société Générale filed down all of their stake on Friday. Probably transferred to Xavier Niel. Niel may have been buying all the way up over the market and could be filing for a +20% stake soon. Or he joins a takeover bid. Bonds keep trading down, indicating greater likelihood of a takeover.
Feb 12, 2023·edited Feb 12, 2023Liked by alwaysinvert
Hi mate, hopefully you are right as I also bought the stock
But using 6x for Bolivia, Paraguay and Colombia is too aggressive.
Also selling towers is not neutral. You need to then pay rent (100-200m usd per year?) and deduct it accordingly in your EBITDA..... But I think your valuation on the towers is too low. I think 2-2.5b USD using other listed tower companies.
The main risk on the deal is structuring the financing , as they can not go higher than 3.5x net debt to ebitda..if they do they need to pay the whole debt to due change of control clauses.
Still very good, but I think fair is something like 30
@EM Hunter What planet are you on? The stock traded above $30/share only 18 months ago and you will struggle to find a change-of-control deal in even the stodgiest of Latam telco assets at less than 6x EBITDA. Also remember that these are bottom of the cycle multiples for assets deeply out of favour. Gilmour's 6.2x is incredibly generous for what is potentially on sale here.
Using your own admission that the towers are worth $2b+ you are barely suggesting a premium at all and Tigo Money hasn't even entered the discussion yet.
Simply bear in mind Ramos' repeated enthusiasm for the company over the years. TIGO is a growth company with excellent prospects in its fibre business. All that growth and a return to popularity of Latam assets are on the table for a buyer anywhere near today's price. Let's not give that away too cheaply, management knows just how undervalued TIGO is.
Mate do not be upset with me, get upset with the market. Check Vivo, Tim and Entel. All those trading 3-7-4.1x ebitda. Also LATAM telcos.
I think Guatemala fine, 6.2x
Panam maybe also a high one.
Colombia? They are not strong and lower margins and this is second most important market. I think you can very well argue 4x ebitda.
Bolivia and Paraguay? Hmm ..... 4x?
Of course on top of that, need to add towers value (let's say 2b USD) . Tigo Money noone will pay a penny now for it even though I see the long term opportunity.
But the KEY question is: can the buyer pay 30usd? I think stretch. Maybe they can, but no more.
Why? If you go above that, you pass the leverage (this will be an LBO I think) of 3.5 and that triggers downgrade of credit rating for debt and big issue as they need to pay bonds at par value. The buyer can not afford to issue debt now to pay old debt (as coupons are 5% ISH and new new bonds maybe 8-9%?). So that is the limit.... And then remember, the buyer is Apollo. He wants to make money.
Sure, we can argue that assets are worth more, bla bla bla. But noone is paying that high and buey can not afford to lever too much the company.
Tigo unfortunately is an orphan. Registered in Lux, headquarters in Miami, with asset all over the place .... So I would rather say yes to 22-25 even. I do not want another failure Lilak style
Yep, fair enough, but those aren't takeover valuations and are reflections themselves of where we are in terms of sentiment. Not an environment to be selling ideally.
If a potential buyer won't be able to finance it above a price that's too cheap, then I would rather wait it out. The management team are highly incentivised to realise the value on offer here.
The market isn't particularly cheap in aggregate, so when I have something I think is worth multiples of its current price, I would rather stick around than realise a quick sugar hit.
Naturally, it's not *value* neutral to sell the towers. They are worth something on the books now. The claim was EBITDA neutral, and that is what Mauricio Ramos said in November. Sale and leaseback of course includes paying rent instead of interest. You may be correct that the towers are worth significantly more, I've seen a pretty broad range of estimates, and erred on the careful side here.
As far, as values go, obviously different countries are worth different multiples. Panama seems poised to become a 2p market now and should have an uplift. Colombia may not deserve a high multiple but the EBITDA should rise significantly in future. Fact still remains that a huge part of the business now consists of Guatemala, and management signalled that it has returned to equilibrium now. There should also logically be a diversification premium to something like Tigo or LILA vs just single country operations on their own, as it spreads out hurricane risk, political risk, etc. This has not been reflected for a really long while in market values, though.
CoC at 50% as far as I understand is activated only if rating is downgraded too. Hence the significance to the Fitch report effectively saying they won't downgrade.
I hear what you're saying, but my role here is not to argue for what poor old PE guys think they can pay and still make a great deal. The immediate de-risking they get from tower monetization is key here. If they can't cough up anything for that, it's better for shareholders to see it out.
a rarely mentioned aspect is how mgmnt multiple layers down are incentivized with stock. am assuming many of these execute hundreds of minute daily decisions to best operate THEIR business, and not spend time pondering which country or startup or board is next on the list. (contrast this with the culture of reckless amount of free shares for the liberty c-suite regardless of performance).
in the end, how does this influence any buyout? if enough of them see tigo as a thriving viable business (relative to others in their LatAm home country), we can hope they want to stay put as owners unless an extraordinary offer arrives.
If you are wondering why the stock is rising this morning, here's a hypothesis: Société Générale filed down all of their stake on Friday. Probably transferred to Xavier Niel. Niel may have been buying all the way up over the market and could be filing for a +20% stake soon. Or he joins a takeover bid. Bonds keep trading down, indicating greater likelihood of a takeover.
Hi mate, hopefully you are right as I also bought the stock
But using 6x for Bolivia, Paraguay and Colombia is too aggressive.
Also selling towers is not neutral. You need to then pay rent (100-200m usd per year?) and deduct it accordingly in your EBITDA..... But I think your valuation on the towers is too low. I think 2-2.5b USD using other listed tower companies.
The main risk on the deal is structuring the financing , as they can not go higher than 3.5x net debt to ebitda..if they do they need to pay the whole debt to due change of control clauses.
Still very good, but I think fair is something like 30
@EM Hunter What planet are you on? The stock traded above $30/share only 18 months ago and you will struggle to find a change-of-control deal in even the stodgiest of Latam telco assets at less than 6x EBITDA. Also remember that these are bottom of the cycle multiples for assets deeply out of favour. Gilmour's 6.2x is incredibly generous for what is potentially on sale here.
Using your own admission that the towers are worth $2b+ you are barely suggesting a premium at all and Tigo Money hasn't even entered the discussion yet.
Simply bear in mind Ramos' repeated enthusiasm for the company over the years. TIGO is a growth company with excellent prospects in its fibre business. All that growth and a return to popularity of Latam assets are on the table for a buyer anywhere near today's price. Let's not give that away too cheaply, management knows just how undervalued TIGO is.
Mate do not be upset with me, get upset with the market. Check Vivo, Tim and Entel. All those trading 3-7-4.1x ebitda. Also LATAM telcos.
I think Guatemala fine, 6.2x
Panam maybe also a high one.
Colombia? They are not strong and lower margins and this is second most important market. I think you can very well argue 4x ebitda.
Bolivia and Paraguay? Hmm ..... 4x?
Of course on top of that, need to add towers value (let's say 2b USD) . Tigo Money noone will pay a penny now for it even though I see the long term opportunity.
But the KEY question is: can the buyer pay 30usd? I think stretch. Maybe they can, but no more.
Why? If you go above that, you pass the leverage (this will be an LBO I think) of 3.5 and that triggers downgrade of credit rating for debt and big issue as they need to pay bonds at par value. The buyer can not afford to issue debt now to pay old debt (as coupons are 5% ISH and new new bonds maybe 8-9%?). So that is the limit.... And then remember, the buyer is Apollo. He wants to make money.
Sure, we can argue that assets are worth more, bla bla bla. But noone is paying that high and buey can not afford to lever too much the company.
Tigo unfortunately is an orphan. Registered in Lux, headquarters in Miami, with asset all over the place .... So I would rather say yes to 22-25 even. I do not want another failure Lilak style
Cheers mate
Yep, fair enough, but those aren't takeover valuations and are reflections themselves of where we are in terms of sentiment. Not an environment to be selling ideally.
If a potential buyer won't be able to finance it above a price that's too cheap, then I would rather wait it out. The management team are highly incentivised to realise the value on offer here.
The market isn't particularly cheap in aggregate, so when I have something I think is worth multiples of its current price, I would rather stick around than realise a quick sugar hit.
Hopefully mate they pay 30-40 or 50 and we all enjoy profits.
I am also long, bought after the FT article.
Absolutely. I don't mean to sound over the top, but returns can be hard to come by, especially lately in EM assets.
I think a situation like this needs to be pressed and not let slip lightly.
Thanks for your comment!
Naturally, it's not *value* neutral to sell the towers. They are worth something on the books now. The claim was EBITDA neutral, and that is what Mauricio Ramos said in November. Sale and leaseback of course includes paying rent instead of interest. You may be correct that the towers are worth significantly more, I've seen a pretty broad range of estimates, and erred on the careful side here.
As far, as values go, obviously different countries are worth different multiples. Panama seems poised to become a 2p market now and should have an uplift. Colombia may not deserve a high multiple but the EBITDA should rise significantly in future. Fact still remains that a huge part of the business now consists of Guatemala, and management signalled that it has returned to equilibrium now. There should also logically be a diversification premium to something like Tigo or LILA vs just single country operations on their own, as it spreads out hurricane risk, political risk, etc. This has not been reflected for a really long while in market values, though.
CoC at 50% as far as I understand is activated only if rating is downgraded too. Hence the significance to the Fitch report effectively saying they won't downgrade.
To me we need to assume this is a leverage buy out. So they will increase leverage to buy the company.
That is why need to add extra debt for the equity premium
Of course very difficult to know exactly how much will they do
I hear what you're saying, but my role here is not to argue for what poor old PE guys think they can pay and still make a great deal. The immediate de-risking they get from tower monetization is key here. If they can't cough up anything for that, it's better for shareholders to see it out.
a rarely mentioned aspect is how mgmnt multiple layers down are incentivized with stock. am assuming many of these execute hundreds of minute daily decisions to best operate THEIR business, and not spend time pondering which country or startup or board is next on the list. (contrast this with the culture of reckless amount of free shares for the liberty c-suite regardless of performance).
in the end, how does this influence any buyout? if enough of them see tigo as a thriving viable business (relative to others in their LatAm home country), we can hope they want to stay put as owners unless an extraordinary offer arrives.
I think you're spot on with this comment. The top guy probably won't be very popular if this ends in a take-under.
Let's hope the best mate
The reason for upp move today is because those who have shorted the stuck are buying back, same thing happened last week