America Movil's mega share buyback seen continuing into 2014

MEXICO CITY Tue Dec 31, 2013 5:03pm EST

MEXICO CITY Dec 31 (Reuters) - Latin American phone giant America Movil spent $5.4 billion this year propping up its share price and more buybacks are likely with new regulation and lingering uncertainty over its money-losing European investments, analysts said.

Controlled by Mexican billionaire Carlos Slim, America Movil's shares closed 2013 up 2.14 percent compared to a 2.2 percent dip in Mexico's benchmark stock index, as the buybacks helped the stock weather a tough start to 2013.

The shares slumped by as much as 20 percent in the first half of the year as Mexico's government passed a reform aimed at curbing America Movil's dominance, and as the company reported deepening paper losses on investments in European peers KPN and Telekom Austria.

"We'd expect buybacks to continue at the current level," said Imari Love, analyst at Morningstar in Chicago.

"The regulatory heat that handcuffed the shares in 2013 is likely to persist in 2014," Love added, noting that Mexico's new telecom regulator is likely to declare America Movil a dominant market player in early 2014, which could entail action such as a forced sale of assets or network sharing.

This year's buyback was massive: it accounted for most of America Movil's capital expenditures and dwarfed the company's repurchases over the last 10 years, taking 7 percent of its total shares out of circulation.

According to filings with the stock exchange, America Movil spent 70.95 billion pesos on buying shares - a figure that may not be too far off the company's net profit for 2013, which at the end of the third quarter stood at 57.45 billion pesos.

Still, America Movil had cash and equivalents of 72.2 billion pesos at the end of the third quarter, up almost 60 percent from 45.5 billion pesos at the end of 2012, which will give it room to buy back many more shares into next year.

A spokeswoman for the company declined to comment.

Other analysts also said a stock buyback is a better way to add value for shareholders of a company facing an uncertain regulatory outlook, rather than seeking acquisitions.

"I think a share buyback probably makes the most sense right now because of the regulatory uncertainty and the unknown impact on free cash flows," said Christopher King, analyst at Stifel. "It gives them more flexibility than anything else."

But while the buyback has been good for stockholders, not all are convinced of the long-term value of the strategy.

To deal with the prospect of increased competition and regulation, America Movil has been trying to move into new markets with its investments in Telekom Austria and Dutch phone company KPN, said Stefan Kip Astheimer, vice president of strategy at fund manager Howe & Rusling in Rochester, New York.

Those acquisitions, combined with network upgrades and other capital expenditures, could limit buybacks in the future.

"Telecom is capital intensive and the new America Movil - which is more of a global player - will have to be more careful about buybacks and dividends so as not to over-encumber its balance sheet," he said.

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