Millicom: Execution Leaves Much To Be Desired as Ownership, Colombia Questions Swirl

Millicom TIGO has taken several twists and turns over the past month, most recently announcing it will miss its target for cumulative free cash flow from 2022-24, which it set with much fanfare 16 months ago. Millicom now expects this figure to reach at least $500 million, down from $800 million-$1 billion, on higher spectrum costs, elevated financing expenses, heavier investment in Guatemala, and weaker fixed-line results. We continue to believe the firm holds attractive investments in multiple Latin American countries, but we believe major changes are needed to improve execution. We had already expected the firm would fall short of its near-term cash flow targets, but our fair value estimate assumes Millicom gradually returns to mid-single-digit revenue growth, which current management has struggled to deliver.

Exiting Colombia would also be a positive. At the end of May, the Colombian telecom regulator announced it will mediate a dispute between Millicom and EPM, its partner in the country. The two entities each own 50% of Tigo Une and can’t agree on how to fund new investment in the struggling carrier. Then, on June 12, Millicom and Telefonica announced discussions to merge the Tigo and Telefonica wireless networks in Colombia, a move that could improve Tigo Une’s position. Millicom has also disclosed that its new cash flow target excludes possible asset monetization and partner equity funding in Colombia. The Colombian business is Millicom’s weakest overall and it contributes little to our $30 fair value estimate.

Amid all this turmoil, Millicom’s ownership also remains in flux. On June 15, Millicom announced that discussions had terminated concerning an acquisition by Apollo Global. While those discussions were occurring, Xavier Niel, the European telecom entrepreneur behind Iliad, steadily accumulated Millicom stock. As of June 2, he controlled nearly 25% of Millicom shares outstanding per SEC filings, up from around 8% at the end of 2022.