Wednesday, November 7, 2007

Starting a Position in Millicom International Cellular (MICC); Exiting Pride International (PDE)

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I did a lot of buying today so I am nearly out of cash. I looked in the mailbox today and unfortunately my investors did not send me any new money (yet again) - stingy folk. So to buy anything at this point, something needs to go.

Getting the boot today, is Pride International (PDE), a holding since early in August. This is an oil driller, converting from land based to deep sea based. It's been relatively flat and I am up less than 2% on this position since inception. The stock is under its 50 day moving average, and aside from needing cash I increased my energy exposure quite a bit this week - although in different areas (refiners mostly), so to keep from getting too overweight I am taking out this driller. I still like the story long term, so when it breaks out (some day), and I have more cash, I will re-enter - I just think the market is ignoring its long term story. I still have Diamond Offshore (DO), and GlobalSantaFe (RIG) in the deep sea drilling space.

I am beginning a position in Millicom International Cellular (MICC) with this money, but am not starting big as this name is new to me. Also I'd like to see more of a pullback. The stock peaked last week over $120 and is now in the $108s or down 10%. I discovered the stock this weekend [How to Make 75% in 3 Months] and have been doing some work on it, and I like it overall although it has a tendency to have lumpy quarters. Despite a massive move last quarter I think this is an interesting long term story and gives me exposure to some areas that the fund has zilch (Africa and South America outside of Brazil) I wrote in that entry...

one company I had not heard of Millicom International Cellular - a quick glance uncovers a European based company which provides cell phones to some of the back ends of the earth, smaller South American companies (not Brazil/Mexico) and parts of Africa. Hmmm... another interesting stock.

Millicom is slated for about $4 in earnings this year and $5.51 next year which is nearly 40% growth. Estimates for 2008 have been pushed up about 6% in the past 90 days. Revenue growth is slated low to mid 30%s. So while most mutual funds are out there chasing China Mobile (CHL) or America Movil (AMX), I'll go here where it's not so crowded. I do have business cell phone player, NII Holdings (NIHD) which has been a loser so far. Still like it, although it needs time to heal after a disappointment (to analysts) last quarter.

From Millicom International Cellular's last quarterly earnings:
  • Emerging markets telecoms operator Millicom (MICC) reported a better-than-expected 60 percent rise in third-quarter core earnings on Tuesday, sending its share price up 18 percent. The firm, which is based in Sweden but focuses on high-growth emerging markets, said earnings before interest, tax, depreciation and amortisation (EBITDA) rose to $296 million from $186 million in the same period last year.
  • The company said it increased its subscriber base by 2 million during the quarter to 20 million, up 77 percent from a year earlier.
  • "Really most parameters are better than expected, subscriber growth in particular," said Swedbank analyst Sven Skold. "The subscriber growth in the second half will be very strong and one can assume that the fourth quarter will also be really good, as it's seasonally stronger than the third."
  • Pretax profit from continuing operations rose to $169 million from $102 million, while revenue climbed 77 percent to $686 million. Analysts had on average forecast $285 million for EBITDA and $153 million for pretax profit, according to a Reuters poll
  • Millicom's chief executive, Marc Beuls, said the company was boosting investment as revenues were rising. "Millicom is today increasing its capex forecast for the full year 2007 from $800 million to over $1 billion as we continue to invest in future growth," Beuls said in a statement. "We are expecting a similar level of capex for 2008."
  • Beuls said the most encouraging aspect of the report was Africa, where Millicom acquired 17 percent more subscribers since the second quarter and 44 percent more than a year ago.
  • In Central America, where Millicom last quarter flagged growing competitive pressures, the firm said average revenue per unit was stable at $20. This, it said, was above the market average.
  • The capital spending plans also showed the company faced more growth than it had expected, he added. "The return on investment in this market is excellent and, if anything, we would prefer this company to invest more early rather than later, as this will determine the longer-term competitive position in the markets," he said.
  • Beuls, in a conference call after the report, said a large part of the new investment would be in Africa and Central America. He said Africa had the lowest penetration rate and needed more investment.
So the stock trades at 27x this year's estimates which end in a few months, but less than 20x 2008. With a 35-40% growth rate, I would not be surprised to see about 50% upside by year end 2008. I am still hoping for a more serious pullback and am light on cash so I only bought an initial stake of 70 shares in the $108s; about $7500 or a starter stake at 0.65% of fund.

$104 would be the next support (20 day moving average) and $94 would be even better to load up.

Long Millicom Cellular in fund; no personal position




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