Latin American telecom giant America Movil S.A.B. (AMX) announced a proposed 2:1 stock split and a cash dividend payment of 36 peso. Additionally, the company has also decided to increase its share repurchase fund from MXN$35 billion (approximately $2.92 billion) to MXN$85 billion (approximately $7.08 billion).
The proposal for the above will be submitted for shareholders approval on or before the company’s annual meeting, April 30, 2011. Accordingly, the dividend will be paid in two installments after adjusting the effects of the split.
America Movil rolled out its plans for dividend payment and share buy back after its decision to skip acquisitions of telecommunications carriers in Serbia and Poland. The current proposal represents the second time the company has announced a stock split in a span of 10 years after a 3:1 division in 2005.
America Movil is the leading wireless services provider in Latin America with 225 million wireless subscribers and 51.5 million fixed revenue generating units (RGUs).
America Movil has acquired Mexican wireline operator Carso Global Telecom, the holding company of Mexican fixed-line operator Telefonos de Mexico (Telmex) and Telefonos Internacional (Telint). America Movil now owns 94.6% of Telient and 59.4% of Telemex.
Additionally, the company has also acquired Pay TV firm Net Servicos, the largest multi service cable company in Latin America. The transaction boosted service revenues of the company as Pay TV revenues increased 36.6% in 2010. The aquisitions have increased the outstanding shares of the company from 32.1 billion in 2009 to 40.5 billion in 2010.
At the end of fiscal 2010, America Movil had around MXN$114.1 billion (approximately $9.2 billion) of cash and cash equivalents on its balance sheet, up 90.9% from year-end 2009. America Movil has a healthy balance sheet with net debt reducing MXN$10 billion (approximately $0.81 billion) to MXN$207 billion (approximately $16.71 billion) despite significant capital expenditure and dividend payouts.
America Movil’s debt to EBITDA ratio stands at 0.84, which is well below the company’s goal of maintaining a debt to EBITDA ratio of 1. As a result, the company can further leverage its cash assets for dividend payments and share buybacks.
In 2010, the company invested approximately MXN$148 billion (approximately $11.95 billion) in strategic acquisitions and spent around MXN$35.4 billion on share buybacks and dividend payments. However, we believe America Movil will encounter cut-throat competition from Brazilian and Mexican rivals such as Vivo a fully owned company by Telefonica (TEF), a leading wireless operator in Brazil and Grupo Televisa(TV), the largest media company in Mexico.
Further, subsidies on handsets, reduced mobile termination rates (MTRs) and regulatory issues are likely to subdue company’s financial performance in future.
Currently, we maintain a long-term Neutral recommendation on America Movil with Zacks #3 Rank (Hold).
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