On Tuesday, Scotiabank reaffirmed its Sector Outperform rating for Millicom International Cellular SA (NASDAQ:TIGO) with a steady stock price target of $30.00. The firm's analysis suggests that the current tender offer from Atlas (NYSE:ATCO) at $24.00 per share significantly undervalues Millicom's true worth, especially considering the company's expected free cash flow.
Millicom is projected to generate up to $600 million in equity free cash flow (EFCF) for the current year, which exceeds the previous guidance of $550 million. This figure represents an EFCF yield of 14.4%, almost double the 7.4% yield-to-maturity of Millicom's 7 3/8 04/02/32 bond. The current offer from Atlas is also below Millicom's recent share price of $24.4.
Scotiabank's analysis indicates that Atlas, which currently owns a 29.2% stake in Millicom, may be using the tender offer as a procedural step to comply with European regulations. These rules mandate a formal offer to be made after an entity acquires over 30% of a company.
It is anticipated that Atlas will subsequently seek to increase its stake to just below 50% without triggering debt covenants related to a change in control.
The bank's final assessment points to Millicom's strong fundamentals, which support a share price of at least $30.00. Moreover, the potential for Atlas to acquire approximately 20% more of the company's shares could create robust demand. The value of Millicom's tower portfolio is also highlighted as a contributing factor to the firm's positive outlook on the stock.
In other recent news, Millicom International Cellular SA reported a robust financial performance in the first quarter of 2024, with service revenue reaching a high of $3.8 billion. The company's EBITDA margin hit a record 36.5%, and operating cash flow saw an organic increase of over 50% compared to the previous year. Millicom aims to achieve an equity free cash flow of around $550 million in 2024 and reduce its leverage ratio to 2.5x by 2025.
Scotiabank recently raised its price target for Millicom shares to $30.00, maintaining a Sector Outperform rating. The bank's analysts pointed to strong projected equity free cash flow and potential for share repurchases as key factors. JPMorgan also initiated coverage on Millicom with an Overweight rating and a price target of $30.00 per share.
In addition to these financial highlights, the company announced leadership changes with Marcelo Benitez set to become CEO. These developments reflect Millicom's current financial standing and market expectations.
InvestingPro Insights
Scotiabank's optimistic stance on Millicom International Cellular SA (NASDAQ:TIGO) is echoed by recent data and insights from InvestingPro. The company's market capitalization stands at a robust $4.22 billion, reflecting investor confidence. Moreover, Millicom's revenue growth over the last twelve months as of Q1 2024 is a healthy 3.47%, with an even more impressive quarterly revenue growth of 8.62% in Q1 2024, indicating a strong upward trajectory in earnings potential.
InvestingPro Tips reveal that Millicom is expected to continue its profitable streak, with net income projected to grow this year. Moreover, the company has demonstrated a strong return over the past three months, with a price total return of 19.07%, and has been trading near its 52-week high, signifying investor optimism.
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