Bonds News

UPDATE 2-America Movil surprises on margins, maintains capex

* Third-quarter margins beat estimates

* 2011 capex similar to 2010’s could free up cash

* Rising competition in Mexico may spoil party (Recasts, adds corporate and analyst comments)

MEXICO CITY, Oct 28 (Reuters) - Carlos Slim’s America Movil, one of the world’s leading telecommunications companies, posted surprisingly strong profit third-quarter margins as the billionaire consolidated his companies in the Americas.

Chief Executive Daniel Hajj said on a call with analysts on Thursday that America Movil AMXL.MXAMX.N would accrue further savings by tying together Slim's wireless, fixed-line and cable assets across Latin America, the United States and the Caribbean.

The company reported third-quarter financial results late on Wednesday.

Wall Street widely expected the company’s margins in the third quarter to shrink as it incorporated less-profitable fixed-line companies with wireless operations, but margins surprised analysts by improving during the third quarter.

“America Movil is firing on all cylinders,” said Hajj.

“You (can) do a lot more with the same amount of money if you do things together,” he said in discussing prospects for merging operations in Brazil, where the company is rapidly growing.

Third-quarter earnings before interest, tax, depreciation and amortization (EBITDA) beat forecasts and the company’s EBITDA margin grew to 41.1 percent from 40.8 percent, besting Goldman Sachs call for a dip to 38.8 percent. [ID:nN27274567]

America Movil consolidated Telmex, Mexico's dominant fixed-line and Internet provider, and Telmex Internacional under its umbrella in June as it competes with Spain's Telefonica TEF.MC to dominate Latin America.

Hajj said the company planned to invest around $6 billion in 2011 as it builds up its network to focus on data services.

“Data is growing very fast,” Hajj said. “There is still a lot if space in penetration with broadband, a lot of space in pay television and a lot of space in wireless data service.”

With America Movil’s network already wiring North America to South America, investments could remain around the current level, meaning spending on the network would increasingly represent a smaller chunk of revenue, increasing free cash, analysts said.

Slim also owns industrial, mining, retail and construction companies through Grupo Carso GCARSOA1.MX


Tomas Lajous, head of research at UBS in Mexico City, expects the company to use its around $10 billion in free cash flow per year to pay debt, buy back shares or boost dividends.

“We think the No. 1 telecom plant in the world sets America Movil on a path of rapid free cash flow growth (double-digit for 5 years) and to yielding it all out to shareholders,” Lajous wrote in a report.

If free cash flow grows from a $10 billion per year base in line with Latin America’s sustainable growth rate of 5 percent, Lajous projects America Movil’s stock could be worth as much as $98.50 per ADR, up 70 percent from current levels.

America Movil’s New York-traded stock closed up 0.33 percent at $57.14 on Thursday.

Other analysts were more skeptical about prospects for the company’s share price.

Andres Coello, an analyst at BBVA Bancomer, wrote in a report that America Movil was trading at more than a 30 percent premium to Telefonica on a price to earnings basis. “America Movil is one of the most expensive telecom conglomerates in the world,” he said.

Telefonica's TEF.N American Depositary Shares rose 1.92 percent to close at $81.03.

Coello expects the fixed-line companies to drag on growth, and new subscribers to decline to 13.5 million in 2011 from around 20 million in 2010.

Both Telmex and America Movil will face increasing competition in Mexico. Telmex is restricted from offering video while its competitors can offer TV, Internet, phone and mobile service in a package. And Mexican telecom are negotiating interconnection fees and if they do not reach a deal soon, regulators could cut fees by half, analysts said.

Interconnection fees, what phone companies charge each other to complete calls from competitors, account for around 10 percent of America Movil’s revenue. (Additional reporting by Cyntia Barrera Diaz)