Saturday, November 14, 2009

Still analyzing America Movil (AMX)

It was late last September when America Movil (AMX) turned up in one of my screens. I'm still analyzing the company and broader economic picture of Latin America. There are few things to digest which is taking longer than my usual analysis of a US based company:

- The mobile wireless industry within Brazil and the surrounding region
- America Movil's running capital expenditure and debt loads to build out 3G networks, and what their long term direction for growth.
- The Peso/USD currency picture.
- The Latin American customer. What are they like and how do their behaviors fair against other consumers in emerging markets.

I stumbled across an interesting article today that sheds some light around the last point. The topic covers the market for smartphones in Brazil and why adoption has been slower than other emerging markets. This matters because smartphones and their respective data plans represent growth opportunties, but only if the price/value points make sense for the typical consumer. It's worth the 5 minute read.

Also of interest is the recent announcement that Dell will be releasing their first mobile phone (based on Google's Android) into Brazil. The phone will be carried by Claro which is run/owned by America Movil.

The complexities of understanding this company however rest in the companies debt structure which is split into 3 major categories of currency:

- Peso (24.9% of total debt)
- US Dollar (46.6% of total debt)
- a bucket of other foreign currencies (28.3% of total debt).

The company earns most of its revenue denominated in currencies in Latin America, but the majority of its debt is owed in USD. As long as the USD continues to weaken against the Peso and Brazilian Real, this will put America Movil in good position. I am no Forex expert, but I'm going to have to dig in here to understand the current environment and where things are going with the USD. It's a factor to consider.

There are a couple of reasons why I am willing to spend the time to research this company as a possible investment:

1. The valuations on paper look good so far
2. The smartphone market has very low penetration at the moment, which may or may not present growth opportunities. More research is needed here.
3. Brazil is just one country where America Movil operates. However, focus on LatAm will continue as Brazil will continue to pump investment into infrastructure and economic growth initiatives leading up to the 2014 World cup and 2016 Olympics. You can bet they will want to put on a good show. It's their time. 4. Tracfone, their US business based on no-contract wireless plans distributed through Walmart, is showing double digit growth rates in subscriber growth (26.3% YOY) and revenues (13.8% YOY).

Which finally leads me to another thought. If economic development continues to move in the right direction in LatAm, there are other investment gems waiting to be uncovered in the region. Unfortunately AMX has already moved up 10% since it turned up on my screen. It's tough sitting on the sidelines watching, but need to exercise some due diligence and be patient.

No comments:

Wikinvest Wire