Wireless carrier fills foreign niche

9/1/2008


  Recent Price
$52
  Dividend
$0.00
  Yield
0.0%
  P/E Ratio
18
  Shares (millions)
186
  Long-Term Debt as % of Capital
51%
  52-Week Price Range
$83.44 - $28.71

As pricing pressure in the U.S. wireless-telecommunications market mounts, with the industry consolidating into a handful of carriers jockeying for market share, profit growth becomes harder to generate. NII Holdings ($52; NASDAQ: NIHD) also faces price competition from larger peers but is growing rapidly in its lucrative market — Latin America.

The company is adding new customers and boosting revenue per customer. Because of NII’s focus on corporate users, those trends should continue. Expansion opportunities abound, and Wall Street’s expectations are on the rise. In the June quarter, NII earned $0.88 per share, up 87% and $0.24 above the consensus estimate. The stock is rated Buy.

Excellent end markets
NII, based in Virginia, provides mobile-communications services to business customers in Mexico, Brazil, Argentina, Peru, and Chile. Products include digital cellular voice services, data services, and wireless Internet access. Mexico, NII’s largest and most profitable market, accounts for about half of total revenue.

Revenue jumped 41% in the June quarter, marking the 13th consecutive quarter of at least 30% sales growth. NII added about 400,000 subscribers in the quarter, increasing the subscriber base to more than 5.4 million, up 34% from the year-earlier period. Average monthly service revenue per subscriber is on the rise, while the cost of adding new subscribers has declined slightly.

With its focus on business customers, NII is capturing an increasing share of a profitable market. The company produces monthly average revenue of $59 per user, by most estimates the highest in Latin America. In Mexico, NII’s revenue per user is five times the industry average. Compared to other wireless providers worldwide, NII also has a low turnover rate.

Compelling growth story
NII’s performance has been particularly strong in Brazil, where subscriber additions drove 73% revenue growth in the six months ended June. Competition in Mexico is stiffer, with large wireless operators cutting prices sharply to attract business. NII is holding fairly firm on prices but still managing robust growth in both revenue and customer base.

Network expansion has greatly increased NII’s reach in Brazil and Mexico. The company has invested particularly heavily in Brazil, where management sees strong growth potential. Expansion efforts focus on Brazil’s Northeast region, an important market for business. To retain customers and attract new ones, NII is working to improve customer service and add services throughout Latin America.

NII repurchased $243 million in stock in the six months ended June, reducing the share count by 3%. The company plans to repurchase $500 million in shares this year.

Conclusion
The stock looks attractively valued given its strong growth prospects. At 17 times estimated year-ahead earnings of $3.08 per share, NII trades well below its five-year average forward P/E ratio of 21. Consensus estimates project per-share-profit growth of 36% in 2008 and 30% in 2009. An annual report for NII Holdings Inc. is available at 10700 Parkridge Blvd., Suite 600, Reston, VA 20191; (703) 390-5100, www.nii.com.



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