NII Still Sounds Like A Good Call

5/4/2009


  Recent Price
$16
  Dividend
$0.00
  Yield

0.0%

  P/E Ratio
8
  Shares (millions)
166
  Long-Term Debt as % of Capital
55%
  52-Week Price Range
$57.05 - $10.23

NII Holdings ($16; NIHD), a provider of mobile-communications services to business customers in Latin America, has been walloped by sharp declines in Latin currencies. Still, excluding currency losses, the underlying business appears robust.

NII continues to add to its coverage area and expand its 3-G digital network throughout the region,  expanding its subscriber base to 6.5 million, up 28% in the past 12 months. Despite the global economic slowdown, NII continues to attract new customers at a rapid clip while keeping cancelations and defaults fairly low. Cash flow consistently exceeds net income, and little of NII’s long-term debt is due before 2011. NII is a Focus List Buy.

March-quarter earnings
NII’s operations stretch across Mexico (47% of March-quarter sales), Brazil (33%), Argentina (12%), and Peru (6%). In the March quarter, NII earned $0.43 per share excluding special items, down 31% but $0.07 above consensus estimates. Hit by the surging dollar, revenue fell 3% to $961 million. At constant currency, however, sales rose 23%, including a 40% jump in Brazil. Operating income increased 34% excluding the currency hit.

While growth has slowed from last year’s pace, the company added 266,000 net subscribers in the quarter, up 4% from levels at the end of 2008. Customer attrition, or churn, rose to 2.1% from 1.8% a year ago but remains among the lowest in the region.

Looking ahead, NII lowered annual guidance for net subscriber adds in 2009 to a minimum of 1.1 million, which still represents 18% growth. The company also backed earlier guidance of 2009 revenue between $4.1 billion and $4.3 billion.

NII is expanding network coverage in Northeast Brazil. In the March quarter alone, NII’s network reached 6 million new customers. Brazil now makes up 30% of NII’s subscription base, a percentage that should climb as expansion continues. The country’s telecom market is fairly stable, and NII expects robust results 2009.

Unfortunately, Brazil’s growth could not fully offset weakness in Mexico and Argentina, where demand worsened in March as businesses downsized and slashed costs. In Mexico, rivals are chasing customers with dirt-cheap rates. Taking a different approach, NII maintains its prices and credit standards. The strategy may hamper growth in the near term but should foster a higher-quality subscription base and keep profit margins high. NII expects Mexico and Argentina will remain sluggish throughout 2009. Concerns about swine flu in Mexico have caused the peso to fall in the last few days. If the epidemic spreads, the currency could continue to suffer, though such damage would likely be temporary, not permanent.

Conclusion
NII trades at just eight times trailing earnings, a sharp contrast to its three-year average trailing P/E ratio of 26. In the March quarter, the U.S. dollar averaged 33% higher against both the Mexican peso and Brazilian real versus year-ago levels. But Wall Street’s expectations for NII are low, and the company seems capable of exceeding them. The consensus projects a 13% decline in per-share profits in 2009, followed by 32% growth in 2010. An annual report for NII Holdings Inc. is available at 1875 Explorer St., Suite 1000, Reston, VA 20190; (703) 390-5100, www.nii.com.

NII HOLDINGS
Quarter

    Per-Share
     Earnings*

Sales
Change

      Quarterly
      Price Range

P/E Ratio
Range

Mar '09 $0.43 vs. $0.62 - 3% $24.49 -

$10.23

12 - 5
Dec '08 0.05 vs. 0.71 + 5% 38.43 - 12.38 14 - 4
Sep '08 0.54 vs. 0.56 + 38% 57.05 - 32.93 20 - 12
Jun '08 0.88 vs.

0.47

+ 40% 52.37 - 32.04 22 - 13
           
Year
(Dec.)

Sales
 (Bil.)

Per-Share
Earnings*
Per-Share
Dividend

52-Week Price Range

P/E Ratio
Range

2008 $4.27 $2.12 $0.00 $57.05
-
$12.38 27 - 6
2007 $3.30 $2.21 $0.00 90.43
-
42.50 41 - 19
2006 $2.37 $1.67 $0.00 69.94
-
42.80 42 - 26
2005 $1.75 $1.09 $0.00 48.23
-
23.59 44 - 22
             
————————————————— Quadrix Scores † —————————————————
Overall Momen-
tum
Value Quality Financial
Strength
Earnings
Estimates
Performance
91 70 96 89 65 60 8

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


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