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MEGACABLE HOLDINGS, S.A.B. DE C.V.
May 22, 2015
Favorable Outlook in the Enterprise and Triple Play Businesses Already Priced In
Change in Recommendation
Change in T.P.
MEGACPO Medium Liquidity
Change in Estimates
Quarterly Review
Last Price:
MP 65.22
Price Target 2015:
MP 70.00 7% Return
■ This report focuses on Megacable’s enterprise operations. We believe that
they offer a significant growth potential going forward as they rely on
state-of-the-art technology which includes the country’s second largest
fiber-optics network.
■ This analysis has reinforced our view on Megacable’s strong
fundamentals which include a high growth, the fact that the company is
one of the consolidators of the Mexican cable-TV industry due to its
significant free cash flow generation and healthy balance sheet, its
position as Mexico’s second largest triple-play provider, and its
management team with a solid track record of value creation.
■ However, we continue with a HOLD recommendation on Megacable’s
shares mainly because we believe that they are fairly valued with an 2015E
EV/EBITDA of 9.3x and a projected P/E of 17.7x. In addition, the upside
potential to our MP 70.0 target price is only 7%.
Favorable Outlook in both the Enterprise and Triple Play Businesses
Megacable accounts for 4% of the enterprise market. We estimate that the
Mexican enterprise networks market was worth nearly MP 55 billion in 2014, using
the information provided by Telmex, Alestra, Axtel, Bestel, Megacable and
Maxcom. This industry expanded 10% compared to the previous year due to the
difficult macroeconomic environment. We estimate that Megacable commanded a
4% market share.
Favorable prospects. Going forward, we estimate that the Mexican enterprise
networks market will expand at a 15% annual rate to exceed MP 95 billion by 2018
supported on a stronger macroeconomic performance. This rate of growth is quite
significant if we take into account that other telecommunications segments, such as
the traditional fixed and wireless telephone services, are declining or stagnating.
Enterprise sales could reach 24% of Megacable’s total revenue. If we assume
that Megacable’s share of the enterprise networks market reaches 5% in 2018
(slightly up from 4% in 2014), its data transmissions revenue would increase at a
40% CAGR to around MP 4.8 billion in order to represent around 24% of its total
revenue (vs. 15% in 1Q15). In other words, this is one of Megacable’s main sources
of growth for the next few years.
HOLD
Other
Figures in millions of pesos
2014
Sales
EBITDA
Margin
Growth YoY
Net Profit
Margin
Growth YoY
Total Assets
Cash & T.I.
Total Liabilities
Debt
Total Capital
St. Equity
Multiples
P/E
EV / EBITDA
EV / Sales
Financial Ratios
ROE
ROA
Net Debt / EBITDA
Div. Yield
2015e
2016e
11,504
4,848
42.1%
12.1%
2,279
19.8%
17.4%
22,912
3,115
6,913
2,360
15,999
15,453
12,146
5,117
42.1%
14.1%
2,473
20.4%
(90.6%)
25,245
3,998
7,401
2,985
17,845
17,175
14,116
5,986
42.4%
23.5%
3,144
22.3%
37.9%
27,922
3,750
7,795
2,912
20,127
19,382
16,198
6,943
42.9%
16.0%
3,670
22.7%
16.8%
30,649
4,900
8,048
2,898
22,601
21,765
24.7x
11.6x
4.9x
22.8x
10.9x
4.6x
17.7x
9.3x
3.9x
15.1x
7.8x
3.4x
13.9%
9.7%
(0.2x)
0.0%
14.0%
9.8%
(0.3x)
0.0%
16.6%
11.8%
(0.1x)
1.7%
17.2%
12.5%
(0.3x)
2.0%
Market Data:
Mkt. Cap ( USD mn)
3,563
1-year Low / High (MP)
51.00 - 67.95
Float
35.0%
MEGACPO vs. IPC (May 2014 = 100)
125
120
115
110
105
100
95
90
May-14 Jul-14
Lower margins. The “not so favorable” aspect of Megacable’s enterprise business
is that competition is very intense as Telmex is aggressively defending its leading
market position. In fact, we estimate that Megacable’s margin in this business
should be around 20-25% in the future, which is lower than its consolidated margin.
Positive outlook in traditional triple play. With respect to Megacable’s traditional
triple play operations, we continue to believe that their outlook is optimistic, mainly
because of a low penetration of this type of services. We expect the revenue
generating units to increase at a 17% CAGR to exceed 7.2 million in 2017, which
should be the main driver behind the 18% EBITDA CAGR over the 2015-2017
period that we are expecting. This includes a 23% rise in 2015, which means that
Megacable is on track to exceed its guidance for the year of a 19% growth in this
indicator.
L12M
Sep-14 Nov-14 Jan-15 Mar-15
IPC
Mega CPO
Martín Lara
[email protected]
℡ +52 (55) 1103 66 00 x 1840
Juan Ponce
[email protected]
℡ +52 (55) 1103 66 00 x 1693
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Megacable’s enterprise operations
Megacable provides telecommunications and connectivity solutions for business customers through
Metrocarrier, Ho1a and MCM. In 1Q15, this unit represented nearly 15% of consolidated sales, up from 14% in
1Q14. We are excluding PCTV from our analysis because this subsidiary is part of Megacable’s traditional tripleplay operations.
Metrocarrier. This subsidiary provides integral telecommunications and IT solutions to medium-sized enterprises,
including enterprise internet, dedicated intenet, VPN’s, ethernet private lines, voice over IP services, cable-TV
services and private video services for hotels, carrier of carriers services and colocation, among others. The
company has a 71,000 kilometer fiber optics network connecting Mexico’s main cities (this network is leased to the
CFE) in 25 states with 3 ports in the US. In 1Q15, Metrocarrier reported sales of MP 69 million, up 32% YoY.
Ho1a. By the end of 2013, Megacable acquired Ho1a, which has dedicated itself to providing integral
telecommunications and IT solutions to corporate and government customers for the last 23 years (which
reinforced Megacable’s position in these two segments). Ho1a’s commercial partners include Microsoft, Avaya and
Cisco. In 1Q15, Ho1a registered revenues of MP 146 million, up 52% YoY.
MCM. This subsidiary provides tailor-made connectivity services for business customers using a fiber optics
network linking Mexico City’s, Monterrey’s and Guadalajara’s main business corridors. In 1Q15, MCM generated
sales of MP 148 million, up 26% YoY.
Competition in the Enterprise Business
Telmex remains Mexico’s largest data transmissions company. Telmex still is the indisputable leader in data
transmission for enterprise customers with a 75% market share. The company relies on a its 200,000 kilometer
fiber optics network, which is Mexico’s largest. Its main products include ladalinks and VPN’s. Telmex’s data
transmissions sales increased only 9% to MP 10.8 billion in 1Q15.
Alestra is Mexico’s second largest data transmissions company. It owns a 24,000 kilometer fiber optics
network and five data centers. This company was the first one to provide cloud services in Mexico since 2011.
Alestra reported total sales of MP 1.4 billion (USD 93 million) in 1Q15, which translated into a 10% market share.
We believe that Alestra could eventually be sold by Alfa because it is a non-core operation representing 3% of
sales and 8% of EBITDA. Another possibility would be that Alfa acquired some of the smaller telecommunications
providers, such as Axtel, to reinforce Alestra’s operations and prepare them for an eventual sale to a larger player
such as AT&T or Telefónica.
Bestel. Televisa’s data transmissions subsidiary, Bestel, operates a 27,000 kilometer fiber optics network of which
10,000 kilometers are owned by the company. Such network covers Mexico’s largest cities and has direct links to
the US cities of Dallas, Nogales and San Diego.
Axtel. This company owns a 8,000 kilometers fiber optics network that covers Mexico’s largest cities including
Mexico City, Monterrey, Guadalajara, Puebla, Toluca, León, Querétaro, San Luis Potosí, Aguascalientes and
Ciudad Juárez.
Maxcom operates a 12,000 kilometer fiber optics network covering Mexico’s 23 largest cities including Mexico
City, Guadalajara, Monterrey and Puebla, among others. This network also has a link to the US city of Laredo,
Texas.
The Mexican Enterprise Networks Market (1Q15)
Share of the Enterprise Networks Market
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1Q14
Telmex
Alestra
Televisa
Axtel
Megacable
Maxcom
Telmex
2Q14
Alestra
Televisa
3Q14
Axtel
4Q14
1Q15
Megacable
Maxcom
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Equity, Economic, Quantitative and Fixed Income Research Departments
Equity Research
Senior Analysts
Martín Lara
Telecommunications, Media and
Financials
(52) 55 1103-6600 x1840
[email protected]
Carlos Hermosillo Bernal
Consumption
(52) 55 1103-6600 x4134
[email protected]
Pablo Duarte de León
FIBRAs (REITs)
(52) 55 1103-6600 x4334
[email protected]
Pablo Abraham Peregrina
Mining, Metals, Paper and
Conglomerates
(52) 55 1103-6600 x1395
[email protected]
Ramón Ortiz Reyes
Cement, Construction and Concessions
(52) 55 1103-6600 x1835
[email protected]
Federico Robinson Bours
Carrillo
Energy, Chemicals and Industrial
(52) 55 1103-6600 x4127
[email protected]
Juan Enrique Ponce Luiña
Telecommunications, Media and
Financials
(52) 55 1103-6600 x1693
jponce@actinver,com.mx
Enrique Octavio Camargo
Delgado
Energy, Chemicals and Industrial
(52) 55 1103-6600 x1836
[email protected]
José Antonio Cebeira
González
Consumption
(52) 55 1103-6600 x1394
[email protected]
Mauricio Arellano Sampson
Mining, Metals, Paper Conglomerates,
Cement, Construction and Concessions
(52) 55 1103-6600 x4132
[email protected]
(52) 55 1103-6600 x4136
[email protected]
Junior Analysts
Laura Elena Bosch Ramírez
FIBRAs (REITs)
Economic and Quantitative Research
Ismael Capistrán Bolio
Head of Economic and Quantitative
Research
(52) 55 1103-6600 x6636
Jaime Ascencio Aguirre
Economy and Markets
(52) 55 1103-6600 x1100
[email protected]
Santiago Hernández Morales
Quantitative Research
(52) 55 1103-6600 x4133
[email protected]
Roberto Galvan González
Technical Research
(52) 55 1103-6600 x1837
[email protected]
(52) 55 1103-6600 x6641
[email protected]
[email protected]
Fixed Income Research
Araceli Espinosa Elguea
Head of Fixed Income Research
Roberto Ramírez Ramírez
Fixed Income Research
(52) 55 1103-6600 x1672
[email protected]
Jesús Viveros Hernández
Fixed Income Research
(52) 55 1103-6600 x6649
[email protected]
Raúl Márquez Pardinas
Fixed Income Research
(52) 55 1103 6600 x1110
[email protected]
3
Guide for recommendations on investment in the companies under coverage included or not, in the Mexican Stock
Exchange main Price Index (IPC)
•
Buy. The stock’s total return is expected to exceed the total return of the IPC index in the current year.
•
Neutral. The stock’s total return is expected to be in line with the total return of the IPC index in the current year.
•
Sell. The stock’s total return is expected to be below the total return of the IPC index in the current year.
Important Statements
a)
Of theAnalysts:
“The analysts in charge of producing the Analysis Reports:
Jaime Ascencio Aguirre; Mauricio Arellano Sampson; Laura Elena Bosch Ramírez; Enrique Octavio Camargo Delgado; Ismael Capistrán Bolio;
José Antonio Cebeira González, Pablo Enrique Duarte de León; Araceli Espinosa Elguea; Roberto Galván González; Carlos Hermosillo Bernal;
Santiago Hernández Morales; Martín Roberto Lara Poo; Raúl Márquez Pardinas; Ramón Ortiz Reyes; Pablo Abraham Peregrina; Juan Enrique
Ponce Luiña; Federico Robinson Bours Carrillo; Jesús Viveros Hernández, declare”:
b)
1.
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1.
Actinver Casa de Bolsa, S.A. de C.V. GrupoFinanciero Actinver, under any circumstance shall ensure the sense of the recommendations
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representing one percent or more of its portfolio of securities, investment portfolio, outstanding of the Securities or the underlying value of
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