Millicom Drives Solid Cash Flow in Q4 Despite Soft Revenue Growth

Millicom’s fourth-quarter results were underwhelming once again with currency weakness, economic uncertainty, and country-specific challenges all weighing on growth. Management repeatedly mentioned that the firm has begun raising prices to offset inflation and that it will continue raising prices this year given the competitive response thus far. We expect Millicom will be able to raise prices at least in line with the pace of local inflation in most markets given the favorable structure of the wireless industries in most of the countries it serves. The firm didn’t provide an outlook for 2023, but reaffirmed its medium-term targets, including 10% annual operating cash flow growth, with price increases and a new cost-cutting initiative contributing. Management also declined to comment further on discussions with private equity investors concerning a potential acquisition of Millicom. We aren’t changing our $30 fair value estimate.

Total service revenue, adjusted for the Guatemalan acquisition and currency movements, increased 2.3% during the quarter, continuing the deceleration trend as growth on the same basis during the first half of the year was around 4.6%. Millicom added 562,000 wireless customers in consolidated markets, its best performance of the year, but revenue per customer remains weak at around $6 per month, down nearly 5% year over year. The Guatemalan business, the firm’s most important, bounced back from a tough third quarter, adding 109,000 net wireless customers and returning to service revenue growth, up 1.9% in local currency during the quarter.

The reported consolidated EBITDA margin expanded about 1 percentage point versus a year ago to 40%. Adjusted for currency moves, adjusted EBITDA increased 1.8% year over year during the quarter. Free cash flow was strong during the quarter, totaling $206 million and pulling free cash for the year into positive territory at $171 million.