Bookkeeping: Restarting Millicom Cellular (MICC)

When last we left Millicom Cellular (MICC) in early April we had a nearly $100 stock [Apr 8: Closing Millicom Cellular] The stock ran up after we sold to $120 but about a week ago Monday was back to exactly where we sold (did I mention this is not a buy and hold market?) But after an earnings miss a week ago Tuesday, the company has traded down to low $70s during a violent sell off.

• Shares of Millicom International Cellular SA declined sharply Tuesday after the Luxembourg-based wireless carrier reported second-quarter sales and profits that failed to meet Wall Street expectations.
• Millicom shares fell $22.02, or 22.6 percent, to close at $75.48.
• The company said earnings rose to $1.22 per share, up from 98 cents per share in the year-ago period. Revenue jumped 37 percent to $843 million, up from $613 million.
• However, analysts polled by Thomson Financial expected, on average, income of $1.34 per share on revenue of $864 million.
• Millicom provides cell phone service mostly in developing regions in Latin America, Africa and Asia that have little or no wireline infrastructure.
• Also Tuesday, Millicom said it has agreed to buy Amnet Telecommunications Holding Ltd. for $510 million, giving the company a boost in Central America, its most important region with 43 percent of worldwide revenue and 38 percent of subscribers.

I still like the story - the company is still growing at a rapid clip - it simply missed analysts expectations. The company is now very cheap on every metric; 2008 estimates have dropped from the $5.75 range to $5.50 and 2009 from the $7.15s to $6.75. I don't expect the future growth rate to be quite as stellar as the past few years, but 20-25% growth rates for a forward PE of under 14 should give us some leeway here.

This market seems to sell strength and buy weakness, but only if you time your entry into the "weakness" well. So MICC fits in that mold of a beaten down stock. Technically the stock is potentially forming a nice double bottom from levels last seen in September 2007. This is not the type of chart I normally buy because falling knives can remain falling for weeks, months, quarters on end. But we'll give this one a try - the past few days the stock has bounced around the $70-$74 range and volume has dried up significantly which hopefully means sellers have been exhausted.

If the stock does bounce we'd probably see a move to the mid $80s before there is any major resistance as this is where the "gap down" began. I might simply take the money and run there or see if they can provide a more reassuring report in 3 months time and see if we can get $100ish. If the stock breaks down below $70, we'll probably take the small loss and exit since the next support level is .... in a galaxy far far away.

We restarted Millicom International Cellular (MICC) into the fund today with a 1.7% stake in the $75-$76 range. The company has no subprime exposure (although I believe that would be a good thing in terms of what the hedge fund computers like to buy now) and last I checked does not have potash, coal, natural gas, crude oil, iron ore, wheat, corn, nickel exposure. But it does have foreign exposure and as you know - when the U.S. sneezes every consumer the world over turns in their cell phones and says "we don't need this anymore". Or so says the hedge fund computers.

Millicom International Cellular S.A. and its subsidiaries provide mobile telephony services in Central and South America, Africa, and Asia. The company offers prepaid services using mass market distribution methods; and broadband Internet, fixed wireless telephony, and public telephony, as well as operates an international gateway, a high-speed data business, and a television station. As of December 31, 2007, it had approximately 23.4 million subscribers and interests in 16 mobile operations in 16 countries. The company was founded in 1968 and is based in Leudelange, Luxembourg.

[Nov 7: Starting a Position in Millicom Cellular]

Long Millicom Cellular in fund; no personal position