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January 08, 2008

NII Holdings Gets Back On Track

Yesterday, NII Holdings (NIHD) announced better than expected 4Q07 subscriber growth, completion of a large buyback, initiation of another buyback, and an impressive new CEO. The shares were up 9.5%. I added NIHD to a new account, the only one I have that didn’t already own a full position, just after the open yesterday and now think the shares could head quickly back to the $60s in a cooperative market.

The key element that drove the gains in NIHD shares was the announcement that 4Q subscriber growth was good enough to beat full year guidance. Significantly, subscriber growth in Mexico reaccelerated following a surprising sequential dip in 3Q07 due to increased competition. Following 3Q07 results, most analysts reduced their total company and Mexico subscriber estimates to below where 2007 ultimately came in. This sets up a round of estimate increases. If analysts don't increase estimates, look for positive surprises later this year. Also contributing to the stock price gains was the surprising announcement that NIHD completed its $500 million share buyback and initiated a new buyback of the same size. One thing that contributed to the stock getting cut in half in 2H07 was the fact that on the 3Q07 conference call management said it would not get aggressive with its share buyback. Analysts and investors took this as a sign that management was not confident in the future. Kudos to Pali Research which noted in mid-November after a meeting with NIHD management that they sensed the company was looking at much larger share buybacks....

....NIHD produced 36% subscriber growth in 2007 across its footprint of Mexico, Brazil, Argentina, Peru, and Chile. Sub growth at NIHD translates to similar revenue growth and faster EBITDA growth as stepped network investment in Mexico and Brazil gets spread over a rapidly growing customer base. EBITDA growth in 2008 should be around 30%, possibly slightly higher now that 4Q sub growth looks OK. In 2009, EBITDA could grow by 25%. I think the shares are a bargain at just under 8 times 2008 EBITDA and just over 6 times 2009 EBITDA. Growth is hard to come by in the current market and economic environment. NIHD offers it at a cheap price and management proved again in 4Q that its stellar reputation is well deserved.

Posted by Steve Birenberg at January 8, 2008 05:11 PM in NIHD