|Shares Out. (in M):||0||P/E|
|Market Cap (in M):||205||P/FCF|
|Net Debt (in M):||0||EBIT||0||0|
|Subject||Follow up notes on valuation c|
|Entry||11/27/2002 11:23 AM|
|The company’s enterprise value is 2.8x current annualized EBITDA. The valuation isn’t easily discerned from the public filings so I have posted some of the details below:|
NII has $325 mil in credit facilities which are being reinstated. In addition, the company has $140 mil in accreted value of 13% Senior Discount Notes due 2009. There is also a $55 mil payable to Motorola for handsets that I am including as debt.
Pro forma cash is $272 mil ($92 mil at 9/30/02 plus $140 mil from the 2009 notes plus $50 mil from NXTL minus $10 mil in restructuring payments). If you want to err on the cautious side, you can eliminate $25 mil of cash because $25 mil of the $50 mil from NXTL has not yet been received.
There are 20 mil shares outstanding which makes the current market cap $205 mil. This produces an enterprise value of $453 mil.
During 3Q 02, NII generated $40.5 mil in EBITDA and $20.2 mil in EBIT. (Wireless companies are not seasonal businesses so it’s fair to annualize these numbers).
While I am using a $162 mil EBITDA number, it’s worth noting that the businesses have been operating under the cloud of a restructuring for over a year and management believes that in the year after next year they will be able to generate $265 mil in EBITDA.
|Entry||11/27/2002 02:13 PM|
|Doesn't this company, and its projections, carry a lot of currency risk? Latin American currencies haven't proven to be the most stable. For the 9 months ending September, they reported "operating" cash flow (EBITDA) of $102 mil. However, that excludes a $161 mil foreign currency loss. Include the loss and the positive EBITDA turns negative.|
What currency is their new debt based in?
|Entry||11/27/2002 02:34 PM|
Looks like a great idea!. Congrats on finding this gem.
I have found companies coming out of bankruptcy to be great hunting grounds, like Carmike over the past year -- up about 1000%.
Do you know what NII's budget is for CAPX related to network upgrades etc for the next couple years. As you know, all the wireless companies have been spending like mad to upgrate for data services. Where do there network stand currently (from a competitive standpoint) and how much more $'s will be required?
|Entry||11/27/2002 03:11 PM|
|Your question is a good one but I think you are slightly misinterpreting the currency loss as an operating item.|
The currency loss you mention is related to an adjustment of the value of balance sheet items caused by the currency devaluation. For example, if you buy a $100 mil dollars worth of Argentine pesos and then the peso declines by 90% against the dollar, you would write down the value of your balance sheet by $90 mil. However, if you owned a widget maker in Argentina, after the devaluation you would simply take the revenues and expenses earned by that company and translate it into US Dollars at the new devalued exchange rate. If that post devaluation earnings number was $150 mil of EBITDA you would not "match" this $150 with your $90 mil loss. One number is an income statement inflow and the other is an asset/liability adjustment.
Results for NII have been hurt by the Argentine peso devaluation which occurred in January 2002. However, the results I've given you are on a *post-devaluation basis*. The 3Q 02 numbers are translated into USD at the new, worse exchange rates. NII produces $160 mil in EBITDA per year under this approach.
Mexico is by far the largest of NII's four markets. It produces $132 mil of cash flow before corporate overhead allocation. Revenues have continued to grow in the Mexican market despite the currency turmoil in Latin America during this period. If you believe as I do that Mexico's currency is more sound than the others, then the currency risk is not as large as it might first appear.
One last point: Buffett has noted that he is relatively indifferent to the impact on Coke of exchange rate fluctuations. His rationale is that the underlying economic moat and earnings power of Coke is relatively constant over a long period of time. And, the earnings power of its consumers is also relatively constant (even though the wealth of its consumers can be wiped out by massive devaluations). Therefore as long as its consumers are willing to part with a constant percentage of their earnings power in exchange for Coke (or Nextel phones) then in the long run the prices will adjust for blips in currency moves.
|Entry||11/27/2002 03:28 PM|
|Thanks. Carmike was indeed a great post-bankruptcy play too. 1000% percent certainly meets my hurdle rate.|
NII's network is 100% digital so there is no costly analog to digital upgrade that needs to be done. This is a problem for some other wireless carriers, though. The NII network can also handle 2 way messaging and web/data services (check out www.nextelinternational.com). I don't know of any other service upgrades that might be needed to stay competitive with the other carriers in its markets.
Unfortunately, I don't have a solid quantification of how much capex will be going forward. Management has been ratcheting capex down every quarter and they've been able to do so because there are isn't any major capex needed in order to continue to service its 1.2 mil subscribers. It is also hard to separate out how much of their current capex is being spent on maintenance versus growth. For example, the company will be extending its network to cover regions of Baja, Mexico. I would consider this to be growth capex because its current subs are willing customers under the current network coverage and presumably NII will add customers in Baja once that buildout is done. But, the problem is that the company does not break out expenditures like this from the rest.
One way to estimate maintenance capex is to use depreciation. Then, a more approrpriate measure would be Enterprise value divided by Operating income. For NII, that multiple is about 5.6x EBIT.
|Subject||shares outstanding, Baja|
|Entry||11/27/2002 04:05 PM|
|Haven't been able to locate the strike price of the 2.22million options under the management incentive plan. Do you know it? Should these be included in shares outstanding?|
You mentioned that NII is adding capacity in the Baja. Are the Seguaro cacti going to get cell phones? The Baja is a pretty empty place....:)
|Subject||stike price is $2.50|
|Entry||11/27/2002 04:17 PM|
|I would inlude those shares in diluted shares outstanding.|
|Subject||Plan of Reorg|
|Entry||11/27/2002 05:02 PM|
for those of us that want to torture ourselves, is there a convenient place to get the plan documents or anything of the like???
|Subject||Re: Plan of Reorg|
|Entry||11/27/2002 05:07 PM|
|The latest version (at least I think it is) was filed as an 8-K on 8/9/02. Your favorite SEC web site should have it.|
|Entry||11/28/2002 10:54 AM|
|Yes, cacti are very talkative you know. :)|
Actually, there are 2.5 million people in Baja. I doubt they are building out the entire peninsula but it is one third the size of California.
|Entry||11/28/2002 10:59 AM|
|McKay Shields, a NYC hedge fund, disclosed yesterday that they own 22% of the outstanding stock.|
Item 4. Purpose of Transaction.
On November 13, 2002, the Plan of Reorganization, Rights Subscription and Backstop Agreement of the Company became effective. Pursuant to the terms of the Rights Subscription, MacKay Shields received Shares in the Company. MacKay Shields holds securities of the Company described herein with the intention of maximizing shareholder value. In addition to monitoring the performance of the Company and its management, MacKay Shields may also take certain steps to further its stated objective. These steps may include, but are not limited to, urging Company management to take appropriate corporate actions to ensure that shareholder interests are adequately protected.
|Entry||11/28/2002 11:21 AM|
|The latest plan of reorganization was filed in an 8K on November 12. The latest disclosure statement was filed on August 9 in an 8K.|
|Entry||11/29/2002 10:11 AM|
|I have always struggled in my head with this stuff, but I think there is or would be significant exposure to NIHD. If the peso crashes--independent of any implications of a weakened Mexican economy on the Mexican operations--Mexican revenues would fall in dollar terms, but so would Mexican costs, and it seems like all significant costs in the Mexican operation are peso denominated, or local. BUT, since there is (substantial) margin in Mexico, Mexican earnings would also fall in dollar terms. The asset value of the Mexican operations would fall in dollar terms. I think NIHD liabilities are dollar denominated as well, which raises an additional issue.|
The Coke analogy fits only if currency volatility is mean reverting. And the concern is that, given the environment in Argentina & Brazil, currency vol ain't mean reverting.
Do you have any thoughts on this?
Capex--It is comforting, I think, that as NIHD has slowed growth efforts in Argentina, Brazil, and Peru, EBITDA less capex is now positive.
|Entry||11/29/2002 11:57 AM|
|My coke example works with non-mean-reverting currencies as well if the real earnings power of that country remains the same. As long as a company can command a constant share of the consumer's income and the consumers' real earnings power remains the same, then that company can maintain its dollar-based income.|
Think about what would happen in the US if the US currency fell by 50% overnight. If in aggregate the value of the work that US workers do remains the same then workers would be able to demand a salary adjustment (gradually). If workers were willing to pay 0.5% of their real income for cellular service, they'd likely be willing to pay 0.5% afterwards. Prices would slowly adjust upward and foreign based companies would preserve their real income.
There is definitely some timing risk, though, in such an adjustment process, especially for companies that have liabilities denominated in a different currency as NII does. A devaluation doesn't change the NPV of a companies real cash flows, but it does create fluctuations in near-term cash flow that could cause an inability to service debt. Isn't it curious, though, that nobody asks about this timing/mismatching risk for companies like Coke, which also have dollar-based liabilities and significant foreign revenues? There seems to be an ingrained investor reflex to think 'Oh no, forex risk' when Latin American companies are discussed. If this causes Latin American companies to be more discounted than others, then that's great for us net buyers over the long-term.
|Subject||2 quick responses|
|Entry||11/29/2002 12:02 PM|
|1. If the real earnings power stays the same, and wages & other prices adjust over time, that implies the currency adjusts too, right, so there is mean reversion (currency move without change in real economics-->price adjustment-->currency moves back to where it was).|
2. The higher the currency volatility, the higher the risk of cash flow mismatch where dollar denom liabilities exist, the higher the liquidity risk, the lower the valuation. Not sure there's anything inefficient about that.
Thanks for answers. Nice idea.
|Entry||12/01/2002 12:44 AM|
|I'm very fuzzy on this issue so don't pay too much attention to what I say, but I have the impression that asset turnover or inventory turnover is something to look at when analyzing the currency risk with banana republics. If a company turns inventory a lot then it holds currency for a relatively short period of time, and the f/x losses can be adjusted for via price adjustements as the currency depreciates. This does not apply to fixed assets - if the currency depreciates long term assets are stuck. |
Does anyone have an opinion about this? Does NII turn invenotry fast?
|Entry||12/01/2002 03:19 AM|
|I'll take a shot. |
Does NII have exposure ; damm right it does; just like any American business that pays for their hard assets in US dollars and puts them down there. Look what happened to NII when Argentina blew up; BK. If the same thing happened in Brazil or Mexico would it hurt NII again? I would think so.
All this theory about everything adjusting to parity sounds like one of my professors from college -- they (professors)also liked to talk about all markets being efficent.
If a major devaluation occurs in one of the countries NII operates in ; it would hurt them. To take an example, lets say we build a taco stand in Brazil and borrow the money from an American bank. We own them interest and principal in US dollars. Lets also say that we have to import all of our food products (beef, taco shells, etc) from the US and pay in US dollars. We sell a taco for 1 Brazilian dollar which equals $1 US dollar, our ingredients cost us 50 US cents per taco. Brazil devalues, now $5 Brazilian dollars equal $1 US. Can you now sell the taco for $5 Brazilian dollars?; not likely, Brazilians can't afford to buy taco's from you (or nearly as many) for $5, there income has not changed. You are forced to devalue with them (in effect what NII just did through BK due to Argintina's devaluation) or stop selling taco's. You are screwed because a big part of your inputs are in US dollars. Remember we borrowed the money to build it in US dollars and a large part of our on-going operating expenses are in US dollars (I said we had to buy our food ingredients in US in dollars).
NII's inputs or a large portion, like the taco stand, are also in US dollars.
I think that if you own NII, you must live with the currency risk. The example above may be extreme, but I hope makes the point that I don't believe there is a painless scenario for NII if devaluation were to occur.
|Entry||12/03/2002 12:09 PM|
|is mgmt. speaking to investors or are they waiting until they list?|
any timing on when they list on the NASDAQ?
is there a lock-up on the new shareholders (their ability to sell)?
do they disclose churn rate?
|Subject||Great Idea,quick question|
|Entry||12/03/2002 09:35 PM|
|Subject||Great Idea,quick questions|
|Entry||12/03/2002 09:43 PM|
|Have you done any work on a per sub comp?looks like trading at 400 per sub.|
Also any thoughts on proceeds from Chile and Phillipines?
Lastly,based on investment capital into this situation,you are paying about 20cents on the dollar,any idea on where the comps trade as %of book or PPE?
|Entry||12/04/2002 12:39 PM|
|I’m interested in learning more about the $265 million EBITDA potential for 2004. In what context and how recently did management indicate that they may be able to do this? Will it require a big change in their business? Also, I’m curious if you have backed out earnings and free cash flow from this potential EBITDA number. It would certainly make the argument more compelling if you were able to point to a possible earnings/FCF number for 2004 instead of relying on comparables and EBITDA. Thanks.|
|Entry||12/06/2002 06:14 PM|
|when looking at a company that earns in these economies shouldn't you use a discount rate and add a risk premium to local "risk free" rates? if not - why not?|
if you do isn't 3 times ebitda close to fair value? the comparables (those that earn in the same currency in the same countries) also trade at very low multiples - don't they?
I think using comps that generate cash flow in the US with a 1.75% fed funds rate is very misleading. What are risk free rates in Mexico, Brazil, etc.?
thanks - good find but may not be as cheap as it appears
|Subject||re discount rate|
|Entry||12/27/2002 04:11 PM|
|NIHD does have one major advantage over a locally traded or controlled company in Brazil or Argentina, which is that NIHD is domiciled and traded in the U.S. I'm not so sure using local comps exclusively is fair.|
|Subject||Question for Charlie|
|Entry||12/27/2002 04:23 PM|
|Where does management say that they beleive they will achieve $265 in EBITDA in 2 years? What basis is there for this growth assumption? That appears to be a large component of the investment thesis here, and I'm surprized more people haven't harped on it.|
|Subject||Reply to duff|
|Entry||12/31/2002 03:01 PM|
|NIHD's plan of reorganization outlines what they see in terms of profitability. I believe they will have beat their plan handily, as the last quarter annualized is greater than the plan guides to for 2003 (even though they are growing EBITDA by 20-30%)|
|Entry||02/10/2003 03:41 PM|
|With a $28 price target by Folcrum.|
|Entry||02/12/2003 09:50 AM|
|Subject||Nice quarter & Outlook|
|Entry||02/12/2003 09:56 AM|
This one is working very well!. Thanks for posting it. On the call today they guided for 2003.
EBITDA $200+ million
CAPX $200 million
Net Adds: 150,000
Positive book earnings by 4th Qtr.
Also have applied for NASDAQ national listing.
Looks like it could move into mid 20's with these numbers.
|Entry||02/12/2003 07:52 PM|
|I'm glad you were able to purchase a position at lower levels. I think a number of VICers did ok with this.|
With the bankruptcy behind them, if things continue to improve operationally then this could really be a great story by the time it moves off the bulletin board.
|Entry||02/12/2003 08:00 PM|
|It's worth noting that the CEO said in today's call that he thought long-term mtce capex was equal to 10%+ of revenues.|
|Subject||FYI. Washington Post article.|
|Entry||02/18/2003 10:43 AM|
|Subject||Target blown away|
|Entry||05/05/2003 11:51 PM|
|Blew by that puppy without stopping to say hello.|
|Entry||08/01/2003 09:48 AM|
Don't know if you still follow this post, but this was and unbelievable idea. Thanks for posting it. Look forward to your next 5-bagger...
|Entry||08/01/2003 09:59 PM|
|Your Carmike idea also seems to have worked out well. |
I'll post again if I find another decent one. It could take awhile though -- I seem to be finding more junk than gems these days.
|Subject||I agree - hard to buy much now|
|Entry||08/12/2003 09:25 AM|
|I agree - hard to buy much nowadays... patience i guess...|
|Entry||09/05/2003 01:19 PM|
|Just curious if you're still involved in this or not. I'm still a holder of a few shares. Think it's worth somewhere between $75-90, but w/ Schindler selling and a secondary coming, i'm wondering if it's done having it's run... any insights would be appreciated.|
|Entry||09/09/2003 11:45 AM|
|I'm still following it but I don't have any great advice for you. I included a target of $28.10 when I did the writeup so it shows how much I know.|
The company is doing well operationally. If you hold shares, you are betting on the considerable longer-term competitive advantages of this company. Or, you are waiting for capital gains (which is coming soon for any readers who bought at the time of this post).
|Entry||10/03/2003 02:06 PM|
|It's shameful to post this but luckily I am a shameless guy.|
I thought VICers might find it funny that the title of the report is "Attractive Early-Stage Opportunity"
RESEARCH ALERT-Legg Mason starts NII Holdings with 'buy'
CHICAGO, Oct 3 (Reuters) - Legg Mason on Friday started
coverage of NII Holdings Inc.
"NII offers a better competitive dynamic than the U.S.
wireless market with only three to four players per market, no wireless local number portability exposure or push-to-talk competition, and the ability to transfer Nextel's proven business model to Latin America," analyst Craig Mallitz said in a research note.
NII, a former unit of Nextel Communications Inc.
Shares of NII rose $3.11, or nearly 5 percent, to $65.91 in Nasdaq morning trading. The stock has risen more than ten-fold since last November, when the company emerged from Chapter 11 bankruptcy protection.
((Reporting by Yukari Iwatani; editing by John Wallace;
email@example.com; Reuters Messaging: