NII Holdings (NIHD) rebounded nicely yesterday (and even more today) but I want to expand on some of the reasons the stock sold off since its December peak providing the buying opportunity I had been waiting for since the big move up following the company’s presentation at the UBS Conference.
Lehman Brothers was out with a report yesterday addressing some of the recent issues and recommending investors use the weakness to buy the shares. The company also was able to address some of the issues when it presented yesterday afternoon at another Wall Street conference, Citigroup’s Entertainment, Media, and Telecom Conference. I listened in on the presentation which was pretty much a repeat of what they said in December. Here is a link to a pdf file including the slides they used at Citigroup. It is an excellent overview if you want to learn more about NIHD:
Download NIHD Presentation
Among the issues troubling the shares and cited by Lehman are the shortfalls at Motorola (MOT) and Sprint Nextel (S) and weakness in emerging markets, especially concerns related to Latin America following Hugo Chavez’s moves to nationalize certain industries in Venezuela. As a reminder, NIHD is a major wireless carrier in Mexico, Brazil, Argentina, and Peru using the Nextel iDEN push-to-talk technology.
Lehman argues, and I agree, that the linkage between MOT, S, Chavez, and NIHD is weak….

MOT’s shortfall was partially iDEN related but MOT’s problem wasn’t handset sales to emerging markets. In fact, those sales are part of the problems as unit volumes are surprising to the upside in these countries but margins are getting squeezed by lower ASPs. Problems at S seem numerous but loss of higher ARPU, higher margin Nextel customers are definitely part of the problem. But problems with brand equity in Sprint and Nextel and complications of their merger don’t translate to Latin America. S once was a major shareholder in NIHD but even that is no longer true as ownership is now under 10%. Regarding Chavez, NIHD had been very clear for the past year that it isn’t interested in expanding into Latin American countries with new left-leaning governments. Over 70% of NIHD’s EBITDA comes from Mexico and Brazil where recent election left the trend toward Western-style capitalism firmly in place.
2007 should be a big year for NIHD as expansion of its addressable market in Mexico and Brazil through network expansion winds down. This should lead to accelerating subscriber growth with margin expansion resulting in a continuation of the company’s 30-50% growth. Given the growth rate, the potential for sustainable growth, and the high quality customer base, management team, and balance sheet, NIHD shares look cheap on any measure that considers both absolute valuation and growth rates. Furthermore, given analyst expectations for 2008, the cash flow multiple looks cheap even if relative growth rates are ignored.