Yet Another Value Podcast - Keith Smith thinks TIGO is a cheap special situation

Episode Date: January 24, 2022

Keith Smith, Portfolio Manager at Bonhoeffer Capital, discusses his thesis for Millicom ($TIGO). TIGO is trading at a super low multiple and a recent deal that the CEO described as a "no brainer" will result in a rights offering for TIGO, which could set the stock up as a special situation as well. Keith breaks down why he likes TIGO versus other telecom stocks, why he thinks the stock is so cheap, and the hidden value potential at TIGO money.You can find all my writings here: https://yetanothervalueblog.substack....My notes on TIGO: https://twitter.com/AndrewRangeley/st...Keith's twitter: https://twitter.com/Bonhoeffer_KDSChapters0:00 Intro1:20 TIGO overview4:30 How TIGO's ownership culture sets them apart8:30 TIGO background11:50 More on TIGO's culture and their CHTR like model15:55 Why TIGO over other telecoms like LILAK or LUMN?23:30 TIGO money, TIGO's big fintech call option31:00 Discussing TIGO's largest market, Guatemala36:00 Breaking down TIGO's rights offering43:00 Is TIGO's equity focused culture a red flag?46:05 A mini-rant on Liberty's management compensation48:40 Could TIGO be a perennial value trap?54:20 LILAK's 2019 bid for TIGO: value marker or red flag?58:30 Keith's closing TIGO thoughts1:02:30 Bonus discussion on broadcasters like NXST

All right. Hello and welcome to the Yet Another Value Podcast. I'm your host, Andrew Walker. And with me today, I'm excited to have Keith Smith. Keith is a portfolio manager at Bonhofer Capital. Keith, how's it going? Good. How are you doing, Andrew? I'm doing good. You know, for YouTube viewers, you might see I'm a little more homeless than normal. I'm just recovering from COVID. It's my last day of isolation. But I'm excited for this podcast. I'm ready to get going. Let me start this podcast the way to every podcast. First, disclaimers, remind everyone, nothing. we talk about on this podcast is investing advice. We're going to talk about a Latin American focus, emerging markets focus telecom today. So probably even a little heightened risk to normal. So just remember, do your own work, do your own diligence, not investing advice. Second, a pitch for you, my guest, you know, there aren't a lot of people out there who are out there looking for low, multiple deep value stocks, but you're one of the last ones. And, you know, we met last fall at a conference. And I saw your pitch for the stock we're actually going to talk about today. But you do great modeling work, great detailed work, and you're not one of those guys who only says,

oh, I'll only buy things at five times EBIT. You do that, but you also have like real qualitative work behind it. So really excited to talk today. That out the way, let's go to the company we're going to talk about. The company is Millicom, actually, but we'll probably call them by their ticker, Tigo. And I'll just flip it over to you. Who is Tigo and why are they so interesting? Sure. Thank you, Andrew. Tigo is a really interesting combination. As you said, It's a company that has a lot of qualitative reasons and growth-based reasons for why it should sell for a lot more than it is. I mean, historically, I started out with primarily focusing on multiples, but what I've really migrated now to more is to try to find companies that have a growth story behind them and being able to take advantage of operational leverage in the business to create faster EPS than revenue growth. And this is clearly the case here as Tigo is a cable slash wireless company.

This company has been described as they're building a charter under a Verizon umbrella. That's probably the easiest way to sort of think about it because in essence, they have existing mobile assets in each one of the countries that they're in, but they're laying a fiber optic network in the country. So in essence, it's the ability to play that. It's actually similar to what the cable companies are doing in the U.S., but maybe even a little bit better from an operational perspective in the fact that they actually own the mobile network,

so you'll be able to get the operational leverage from not only the cable that they're building, but then from the mobile network on top, in addition to. So there's some really interesting dynamics. The margins of some of these businesses is really high. They basically recently bought or in the position to buy the asset, they own in Guatemala. It has like 50% plus EBITDA margins. And so those aspects of these businesses make them really interesting. I mean, the thing that really stood out to me as I was diving into this company initially is you got the operational leverage. And if you look at the countries

where Milacom is actually located, Ortego, most of the markets of 67% of the EBIT does in markets where there's only two competitors. And one of the key things that I've seen in sort of of fiber, broadband types of companies is you want to limit competition. If you can get into markets with zero or one competitor, you can get some decent margins. When you start to get three, two, three, four, five competitors, all of a sudden, the margins really can get destroyed. So if you're looking at, when you're looking at this business, it has 67% of its EBITON countries where it's, you know, there's only two competitors. It themselves and someone else, and in most of the cases, they're the dominant competitors. So they'll have, they'll be the,

they'll be the one that has the biggest share. So those are the type of situations that, and they also have a lot of local contacts in a number of the countries, they have joint ventures, which basically, I think, is very important in Latin America. The other aspect about this business is you've got two companies. You have this company and Lilac who are more, what I would say, U.S. slash Swedish government, Milacom is based in Sweden. Both these countries have Western governance in terms of the way they run their business,

the way they think about business. They're competing against incumbent Latin American, Spanish companies who have a different way of thinking about things. You can clearly see it in the equity compensation. Who gets equity and how far does the equity go down the management chain? So if you look at a traditional company like Telefonica or even like AmericanMobil, the top management pretty much controls the business. In both this company and Lilac, the top. managers have, you know, basically equity compensation, but they actually, in Milacom's case, that's same thing.

In a lot of cases, it's driven down to the country level, which I think makes a huge difference. It's very much in contrast to a lot of Latin American types of companies. I think create some very interesting incentives for people and basically for people to be more creative and to actually do the capital allocation. I mean, with Milacom, they've sort of developed that to the point where actually the country managers are in charge of capital allocation. So basically the CEO has taken that function that normally would be done at the front

off at the top office and pushed it down, which is very important. If you look at it in companies like, you know, a lot of these sort of serial acquires people like Constellation, these other guys, their focus is to try to develop teams that can do M&A. This is the same thing going on in telecom, which I think makes it in a big contrast to the traditional players that are in this marketing, creates, I think provides them a very nice, competitive advantage over the people that are there. The other thing is, so you've got a company that's positioned well in these Latin American

markets. The other key thing about EM investing in general is currency risk. Currency risk is a big, big thing, especially when it comes to some of the Latin American markets. What's very interesting about Milacom is if you take a look at the weighted average EBITDA and take a look at the exchange rates going back to 2000, they've declined only about 0.5% per year versus the dollar. Primarily, that's because the countries are doing business are either dollar denominated countries like Bolivia or El Salvador, or they basically have very strong currencies

like Guatemala. Now, Guatemala has the currency is the Ketzel, but their currency is very strong because the remittances to Guatemala from the United States is three times their exports. And so it's a very stable currency similar to the Philippine peso. They have a lot of, of expatriates in the U.S. So that leads to a very stable currency situation, which I think is unusual for most, you know, EM type of situations. On top of that, you have, with the other risk in a lot of emerging markets is what I'd say is sort of political uncertainty. Now, there's been people that have actually, Demoderance has actually put together a pretty good model for this. He's a NYU professor to figure out, okay, well, what's the implied country risk premium?

for these various countries. Now, if you do that analysis with Milacom and you do it based upon the weighted average EBITDA again, you get roughly what the multiple should be is about, you know, the multiple at Millicom, if you compare it to, let's say, a U.S. company using that framework, you get roughly about two-thirds of what a free cash flow multiple should be in the U.S. or 75% of what an EBITDA multiple in the U.S. would be applicable to Milacom.

And that includes both incorporating the political aspect, which is independent of currency and the currency aspect of it going down 0.5% per year. So I think if you use a model like that, that at least gets you to say, because one of the real questions in these businesses, okay, it's a great business, I really like it, but how much should I really pay for this versus like a U.S. competitor or some competitor that I'm used to seeing? And I think that provides a rough idea of what it is. But if you look at it, if you use something like that, the company does.

has some really interesting aspects, just to give you a little flow in terms of how do we get here? Why is this thing so cheap? There's another company, Lilac has a lot of the similar sort of characteristics. But what happened, this company was primarily owned by a Swedish conglomerate called Kinevik. They basically sold off their shares. And as they sold off the shares, there was some pressure on the shares. At the same time, the company actually started trading on the NASDAQ. And so what happened there was, okay, there was this huge, there was a large decline in sort of a, there's a large overhang that hit the market. And then what happened after that, this was probably like 2008, 2009, then COVID hit. So COVID hit Latin America much harder than

it did the rest of the world just because of its lack of health infrastructure. And so then it got really got hit by with COVID. And so between those timeframes, so they had the, the, the, the, um, they had actually the, you know, the overhang, they started to grow. They got hit by COVID and then that just knocked everything back down. And then now they're recovering again. So we're at a point where they're recovering. As long as there isn't anything crazy goes on with COVID in Latin America, these guys have a nice tailwind happening now because as a result of COVID, actually, the companies come out stronger from a number of cases that continue to build out that charter network under the Verizon umbrella. And in addition,

to that, they provided key services to the government. So they've been able to actually provide remittance services to get cash out to individuals that the government wanted to get cash out to. In a lot of these countries, there's a lot of unbanked population. And the way that they can get cash to them is via the phone, like what they've done in, like what's happened in Africa. So they've really become more ingratiated to some of these governments by basically doing this and providing this service. The nice thing that I like about Milacom versus other. larger telecoms is what they would say, I would say they're really competing in more what I would call secondary markets. The only large market in Latin America they're really

competing in is in Colombia. And in that market, they do have a lot more competition. They do in these other markets. But there are other large markets that they have are primarily Guatemala, Bolivia, Paraguay. And so these are relatively smaller markets. But they're in really good positions in these smaller markets. And so, and they, like saying, they also have a lot of, you know, JVs that they hooked, they basically allied with local, local providers in those markets. So I think it's a, it's a really interesting combination of an undervalued stock that's been hit by a lot of real uncertain situations. But I think going forward, it provides a real interesting opportunity because I really think, as Latin America is really going to, especially

Central America should really get a big boost up as the United States, you know, is a lot of the stuff from China and the manufacturing gets moved more onshore. I think there's going to be a lot of opportunities in terms of these markets becoming growth markets. And these guys providing the core infrastructure for this is good. Now, on top of all this. Let's actually pause there because you've already run through so much. And a lot of the things you talk to are things I want to dive into.

So let's just pause there because we've done so much. So the first thing you started with, and I've got a quote over here, you said, hey, you look for and this company has EPS growth faster than revenue growth. And you started mentioning this company does, it's a more Americanized way of running things than a lot of their competitors or Western eyes. And I thought there were too interesting there. A, when you say EPS growth faster than revenue growth, operating leverage, that type of stuff. I mean, any telecom investor, anyone who looks at Charter, which,

people who listen to this podcast probably know I've done quite a bit. It's very John Malone-like. And, you know, Mauritio, who is the CEO here, that's not a coincidence, right? He's got a history with Liberty Global, which is John Malone's European venture. I believe he sits on the board of charter, actually. So, you know, I think a lot of people would think Tigo. And as you said, they used to be owned by a Swedish conglomerate. They think sleepy, Latin American cable company, like, no, these guys are running a very Western charter-like playbook. The interesting thing there, you said that I wanted to dive into, and then I wouldn't dive into a lot of other parts. But you said they've got an American versus Westernized culture.

And our American versus like kind of Latam, more sleepy telecom culture. And when you said that, I thought you were going to talk more about the operating leverage, the share buybacks, a little bit more aggressive capital structure. But what you talked about more was pushing equity down to the management levels, which I thought was really interesting. And they've certainly talked about that. But do you think that's really the key different, one of the key differentiates, differentiators for Tico versus their competitors?

I think so in some of these Latin American countries. I mean, if you think about, you know, the ability in some cultures to actually, some people really culturally like an American culture, but they're in a different culture, right? I mean, you see this in Asia. Some people in Asian cultures really can't stand the structured aspect of Asian cultures, and a lot of them will immigrate to the United States. but if they were in that culture and they had the opportunity to express that ability, I think the same thing can happen in Latin America.

You've got people that are different. People are different everywhere, right? I mean, you're going to have a certain group of people that are probably, we'd be more drawn to something like this in those countries. And you're going to get people, I think, you actually become almost like a magnet or a really best employer for someone in those countries that wants to do something different. say, okay, well, I can basically grow up from this. I don't have to be part of the ruling family, the management family to really become a big part of this and really grow something big.

And I think that's an aspect of it. So I think, you know, there are some stuff in like companies in Latin America, probably through the venture stuff where this has become more prevalent. But I think in telecom, this is definitely an interesting area. And I think that's one differentiator between, what I see between Lilacom and this and in terms of the way that they do stuff. I mean, if you look at it, it's very interesting because actually they even have like a Milacom cheer, you know, and this kind of stuff. It's a really, if you get in. I saw they talked about that in a presentation. I mean, and I was rolling my eyes so much.

So, I mean, I think it's got a part of that Latin culture. And it's just, yeah, yeah, rah, rah, right. Which I think is great. It's really reflective of what. what this really is. And I think it's a really interesting combination. I mean, the other aspect of it is customer service, right? I mean, these guys have had the highest, MPS is one of the focus things that they have for management incentives. So they're really trying to provide, you know, serving the customer is sort of like what their focus is. And I think this can really

be in contrast to a, let's say, a larger telecom where working in Guatemala, compared to their big picture, really doesn't mean a whole lot, right? I mean, if you're a, Telefonico or if you're even American movie. I mean, Guatemala is a tiny piece. So, so, but to them, but to, but to Milacom, it's a really big piece. It's probably their largest country. Guatemala is 40 or 50% of the EBITA, I think, and I think that's before the merger we'll probably talk about. It'll probably be a little bit more after. Okay, so let me ask the second question. And you just said, uh, you even starting comparing, you, you talked about, hey, you know, I've got a model or I use some models that says a, a, a company with Tigo's emerging

market ratio should trade for about 75% of what a U.S. telecoms should trade for. There's a lot of other telecoms out there, and a lot of them are cheap. You know, you and I have talked before about some of the ILEXs, like a frontier, a loom in, which probably trade for four or five times EBITA. And yes, a lot of people will look at them and say, oh, well, copper DSL assets. That's declining. But they've actually got a lot of growth asset, a lot of growth through building out fibrous home, which I think can be very creative.

You know, the returns are the jury sell out on if they will. actually do so successfully or not. History says it's a tough return, but recent results have said maybe. So you've got the Ilex in the U.S. You could go join me and be a perennial bag holder in Altis, which probably trades for six, seven times EBITA right now, not that much more than TIGO. And that's, you know, the risk there is Altis management. It's not emerging market risk. So a lot, very cheap in a domestic market. Or there's Lylac, which yes, Tigo runs a John Malone Liberty style playbook. But you know, you know, you could just go get Lilac, which has already done the big acquisition, already done the rights offering, and is aggressively buying back shares now where Tigo will, you know, they were about to. And then they did the deal we'll talk about. And now they're kind of on a deleverging integrating path. So, you know, I just listed a lot. But I guess the question is, why is Tigo your choice when it seems that there are other options that might be a little simpler, a little bit cleaner story, a little less emerging market risk? Well, I mean, the one thing that I think about Tigo is, well, let's compare it to someone.

somebody like Lilock. I think if you look at the underlying portfolio of what the companies have, they're different. They're not quite the same. I mean, Tigo is focused on sort of what I would say are central and Latin American countries that have a long-term sexual, secular growth story beyond, you know, so you've got this underlying growth, this insourcing, outsourcing thing there. They're secondary countries. Now, if you look at Lylok's footprint, Lylok's footprint is primarily, primarily Puerto Rico, the Caribbean, and Chile. If you look on the secular growth for those areas, beyond the Caribbean and the travel-related stuff,

Puerto Rico is pretty mature and Chile is pretty mature. So the underlying growth, I think that's one of the differences between the two. The other thing, too, if you take a look at this on a proportionate basis, Antigo has been able to do a better, at least historically, hopefully going forward, both of them will be able to do this, has been done a better job of converting the EBITDA of free cash flow. But in essence, and so I think the other thing that's that one additional sort of factor in in Lilac's cases, since they do have so many Caribbean countries that basically they have

that you have the hurricane risk, right, which is. Yeah. Oh, oh, yeah. We need to continue to get, as time goes on, it's going to, it's something that's not going to go away. It's probably even going to get worse. And so that that's something that, I mean, I guess the worst hurricane. that can hit, they can hit Milacom would be possibly Guatemala and Honduras, but it's not, it's not nowhere near like what Hurricane going through Puerto Rico would do for Lilacs. Look at what Hurricane Maria did to Lilac. A lot of people think that set them back.

I mean, I think even John Malone said he, he bought on the open market like a month before the thing. And I think it set them back like three or four years. It was an absolute disaster. And I don't think that that's going to stop. I mean, and maybe they figured out a way to prevent that from happening. But I mean, in those in those areas, I think that that that's an additional risk. So that would probably be the contrast. The company, Millicom's got a little bit, I think a little bit from a political risk perspective, I think they're probably comparable. From a, you know, an environmental risk perspective, maybe Milacom is a little better and has a little bit more growth. So I think that's sort of the contrast there. And then comparing it to the U.S. businesses, I think the big thing in my mind is

competition. The competition in the markets that Milacom is is very small. That's one of the key things I look for because in essence, when you're dealing with telecom type businesses, competition is what's going to kill you in the end. It's not because in essence, if you only have a few competitors, you only have one or two choices, that's how the cable companies have been able to do so well for so long as they never really had any competition. If you don't have competition, you can create tons of profits. And so that's what I really look for. And that's in this case, we've got, I'd say, 67% of the EBITDA is in places where there's only one competitor where these guys are the dominant guy in my mind. That's a huge difference. Now, if you take a look at stuff

in the United States, it is going to be get more competitive. I mean, it's very interesting. I was listening to a call the other day. They said in the next five years, there's going to be more fiber laid that has been laid to date in the United States in terms of like all these companies just laying fiber all over the place. And we'll see what's going to happen. It's going to be interesting to sort of see how this all plays out with the cable companies where you've got an incumbent cable company versus a new guy coming in. I know like for here in Rochester, we've, we've had, we have charter spectrum. We've got, we've got a new guy that's come in green light and we've frontiers just to start to put stuff in here. And right now, a lot of people have left charter. I mean, it's just like it's,

you know, you can look at it and you just say, okay, maybe Rochester's an unusual microcosm. But I mean, And there were people in Rochester that would just sort of sit there and basically, you know, give petitions to the town and basically they would actually take their own time, go out and collect other people in the neighborhood to get people to get away from Spectrum and charter. It was just like, okay. And so you just see, when you see stuff like that and you just see what's really happened there, in my mind, you know, maybe just be a microcosm in Rochester, but I think people finally given a choice will sort of. hopefully that will bring up everybody's game. Everyone will get better service as opposed to historically what's not. That's why I think another key aspect of Milacom is basically the customer service aspect. Because I think in the end, when you talk about these businesses, these cable businesses

and these businesses, they're doing well. In the end, it's all come back to customer service. I mean, you can provide poor customer service if you don't have any competition. But I think the days of that happening is going to become. you know, less and less over time. As I said, with Altese, my perennial bag holding, like, they have learned that lesson, right? You can provide poor customer service for a long time, but it does come back to get you. Or, you know, Frontier, we talked about, they bought Verizon Fios, some fiber assets from them. At the time, they had 50% market share on a lot of their

markets. It was, you know, a 50-50 duopoly, them and the cable provider in a lot of their markets. And their customer service was so bad, despite the fact they had fiber, which is a superior assets of cable and was far superior five or seven years ago, despite that fact, by the time they filed for bankruptcy and got new management there, they were down to about 41% market share. To lose 9% market share with a superior asset in five to seven years, mind-boggling. And it does just show, I mean, it takes a while, but eventually it does catch up to you if your customer service support.

I want to dive, you and I were talking before. There are so many markets here, it's tough to talk about all the markets here. We'll probably only have time for Guatemala, which has a big deal. There's a rights offering and everything. I want to talk about all of that, but I want to talk about one of the interesting call options associated here, you know, people can go look at, I'll put my notes in the Twitter, I put my notes on Twitter, I'll put those links in the show notes, or Ben Clarmine over on the Compounder's podcast had a fantastic interview with Tigo CEO. And the thing that jumped out in both my prep

for this podcast and that interview I just referenced was Tigo Money, which it's a call option, right? Nobody's going to sign a big valuation to it yet. But they talk about how Tigo Money is the startup fintech that they think they've got huge advantages in building a really dominant fintech in all of their markets, which if they're successful, go look at the valuations for fintech. Maybe not so much today as three months or six months ago, but if they're successful, it could create tons of value. So I was hoping you could maybe talk a little bit about Tigo money, you know, what they're trying to build them and how you think that could get valued eventually if it kind of goes in a

reasonable case. Sure, yeah. So, I mean, like you're saying, Tigo money, and it's been popular in Africa, I think maybe I don't know that's where we started, but they, but Bill O'Con just to give you a little bit of history, when it started out, it was a combination of an African and Latin American telcom. What the, the decision was made, I think, when Mauricio came around the same time was they wanted to divest the African assets and focus on the Latin American assets. And so with that decision came with it, a lot of the TIGO assets in Africa do have a sort of a mobile money. In essence, what happens in a lot of these countries, the only people that are banked are the people that have a lot of money, which in these countries, not that many. So maybe you're talking maybe 10, 20% of the people are banked and 70 to 80% of the people are unbanked. And so of all these unbanked people, how are they going to, historically, it would be a cash economy. But what's happened is they've developed a lot of these mobile devices, mobile telephones. So in essence, you can pay with your phone. And so that's what really Tigo money does in a lot of these countries. And especially in a place, like Guatemala, there's a lot of remittances that they can do, so they're competing against

Western Union and the other remittance types of businesses. And so in those areas, and the nice thing again about TIGO being in these second and third tier countries is there's not as much competition. I mean, you hear about all the fintechs, but all the fintechs are in Brazil, in Colombia, and in Argentina, and these really big countries. So there's tons of competition. Well, Tigo can be a big guy in Guatemala, right? I mean, there's no one else that's going to compete in Guatemala. And a lot of these are on a country-by-country basis. So it's not like you can do in the United States and just spread it all around.

It's all country by country. You need to have the relationships in the countries, which I think is a very important piece that Tigo has, is they have relationships with the telecom folks in the country and then the banking folks in the countries. And so in my mind, that's a key aspect of basically being able to do that. And the way you can think about TIGO is just a bunch of little, a little, like, localized markets as opposed to a much broader market, which creates a bunch of these local duopoly in telecom and even like, it may be almost like a, I wouldn't say a monopoly, but pretty close to it in a lot of these countries. The other things they've done is that in these countries, TIGO has provided sort of remittances or the ability of the governments to get money out to people in a relatively quick way. And that's done two things.

It's basically a proof of concept. This thing actually works. But second, they're ingratiating themselves to the governments because this is an easy way for the government to say, okay, I want to send a bunch of ketzols to people that are having problems with COVID. Just tell me where I go. it and we'll just, the central bank just sends it to Tigo and Tigo sends it out to people. They get it on their phone.

They can take their phone and go to the vendor and say, okay, I want X amount for food or whatever they need. And so in essence, it really provides a good access to that. And again, it's sort of, you know, what I would say is really is not a competitive environment. And that's what I really like to try to look for in companies is where there is in competition. The competition probably has destroyed more profits than anything else. So if you can stay away from the competition or you can be in these smaller areas, it really creates some potential, I think, for some good long-term back.

And if I could just add one more thing there, I think one of the cool things they've talked about is they're starting to go, you know, everything you just said, they've got the fundamental, but they're also starting to go to the local merchants and get point of sale acceptance and all that type of stuff, I believe. And, you know, look in the U.S. It is really hard to go get 100 store franchise chains, but you know what's even harder? go to Guatemala and get like the mom and pop corner store there to get acceptance. So I just think like it's really difficult to do that, but they've got relationships with

every consumer has a phone or most consumers have phones. A lot of them have Tigo phones given it to Duopoly. And Tigo often has relationships with the local people. Once they get that relationship, I mean, they've got a huge advantage in kind of bootstrapping this network up. It's a call option, no doubt about it. It might not amount to anything. But if you think about it, they've got a lot of advantages to create something that could be

really valuable. Oh, yeah, yeah. I mean, if you look at it, I mean, one way to look at it is to say, okay, let's look at it versus, let's say, a number of users of some of these neobanks. I mean, so you probably can get potential values. Again, this is really more speculative on this one, let's say, like the towers and the data centers, which are probably much harder. Again, it's an asset that they could spin off. But in this case, you probably could get potentially get a value of, I'm thinking, one and a half to two billion dollars if you do it on a per user basis. Now, they're not at that scale now. that's the potential if they can roll this out. And that's sort of what their intention is. Their intention is to actually either spin these assets off or get some investment into these assets. So they're actively trying to do that for both this assets. And then the other assets, which I think are much more marketable, which a lot of Latin telecoms have actually spun off and done,

which would basically be the tower assets and the data center assets. And especially with this purchase of the Guatemalan assets, they finally get control of it because the way the JV was structured before was they didn't even have control. That's why it really wasn't consolidated in the financial statements. And that created a whole other aspect of this investment where the reported numbers really weren't the reported numbers because their largest, one of their largest, I mean, almost like 40, 40, 45, 40 percent plus of their EBITDA wasn't even consolidated because it's part of this JVs. that they've got in Guatemala and Honduras.

And so you had a company that was reporting some numbers, but a very large portion was not on the reported numbers, but that was the probably most profitable part of the business, too. In addition to that, I mean, in Guatemala, they're making 50% plus EBITDA margins. And I believe they even said, like, look, we'd love to invest more in Guatemala. And most telecom investors love to see increased investment because you're going in, you know, it's upfront investment, but generally you go and you build networks and you return to your returns are great. And when you build the networks, it increases the value of the overall

networks, you get a little bit more operating leverage. And Tigo was saying, we wanted to put more money in, but our JV partner didn't want to put any more money in. So we're always having these headaches. So I think that's a great transition. You know, the big market here, there are about five markets that each make up 10% of EBITA. I think it's Bolivia, Paraguay, Colombia, Panama, Honduras, El Salvador. But the big market here is Guatemala, right? And just in November, they announce a deal. They're buying, as you said, they're buying in the minorities. Guatemala will be wholly owned.

It's going to be a much cleaner story going forward. And they're going to do a rights offering to fund that deal. So I was hoping we could talk about all things Guatemala. We can talk about the deal. We can talk about what you think about the Guatemala market. We can talk about the rights offering. They're used to do it. Just everything.

But Guatemala, everything else is a risk and a focus. But Guatemala has to be the key focus for anyone who's interested in Tigo. So I thought we could just dive into that. Sure, sure, no. I think it's a great opportunity. If you look at the three, the three areas where they could potentially eventually. The other thing about this business is, okay, they have a great, a great sort of historic, historically they've done relatively well. And the nice thing about the business is they have a lot of reinvestment opportunities. A lot of people talk about compounders and the issue with some companies is they create large returns on capital, but there's no places to reinvest it. Tigo has three big buckets to reinvest. One is the JV partners. You've got the JV partner here in Guatemala, got another one in Honduras, another one in Colombia. So that's one.

The second one is sort of the repurchase and the third one is the rollout. But in terms of Guatemala, can I just be explicit? When you say they've got three places with the JV partners, what you're saying is over time, and as they've done with Guatemala, over time, they'll go buy out the other JV partners. So they'll take the capital, buy them out, 100% ownership. and it's a great use of capital because who knows the asset better than TIGO, who's already operating it, who already owns it.

There's no integration risk. Hopefully they get a good price for it, but they're reinvesting because they're getting full ownership of the network. Exactly. And so that's the great thing. They work with these guys who are operating these networks. They know exactly what it is. So from Guatemala's perspective, so that's one neat aspect about Guatemala.

I mean, the other aspect is just the currency aspect of the fact we talked about before in terms of the remittances. It's a pretty stable currency. I mean, the other, if you look at the business in Guatemala, the EBITDA margins are 50%. In Guatemala, the way it's sort of set up right now, they own a large part of the mobile market. They're like 60% and the next guy is like 35%. So they're hugely mobile. When the broadband, they're number two, but the number one guy is like 45 and they're 40.

So, I mean, they're pretty close in that. So in essence, what you've got is you've got a situation where with continued investment in Guatemala, it can be a really great investment. And like you're saying, I mean, the nice thing about that I really like, I really appreciate about Milacom is the rights offering and almost the John Malone-esque type approach to getting shareholders involved, basically saying, okay, we need capital. What's the fairest way to give capital a shareholders? We're going to do a rights offering. We're not just not going to try and do a private placement to some of our friends that we know they can get a special deal to do this, we're basically going to provide a rights offering to shareholders, so existing shareholders

can basically take advantage of this opportunity along with us. And so I really like that aspect of it. I mean, Malone has done a lot of that and really had influence with that, but I think in my mind, that that's a key aspect of this. And going forward, if they need to do this, part of the issue with this is they don't want to take on a whole lot of debt. And so I think that's what's really driven the rights offering. And then in addition, they're in the process of paying down debt over time.

As they do that, then they'll always look at buying back shares, but I think what they do is they have a lot of really good investment opportunities and investing in Guatemala would basically provide them a higher rate of return than investing in shares.

And the investment in the network is also a nice return on investment, but that's more of a staged over time thing that they're basically going to be doing. And so it's not really one, a big one. But I think like saying, they do have a lot of other opportunities to now and going forward to actually basically invest with these JV partners, which I think is probably the best way. If you think about the best way to sort of invest in these kinds of things, you know the assets,

you know the partners, you know exactly what's going on. So it's not like, it's a lot more risky to buy an asset from someone else that you have no idea of what may be there or not. In this case, you really have a good aspect of that. So, I mean, I think Guatemala is just an example of what's going on here. And like you had said before, I think what can happen here with these rights offerings is there's some strange things that go on with stock prices around rights offerings. And it could lead to a very interesting catalyst. There's a nice tailwind here. And this may be just one catalyst to get people more interested in this name. I don't think there's a whole lot of institutional interest at this point, but maybe this

will capitalize it and people will start to take a look at it. Let's talk about the rights offering. So the rights offering, you know, I believe I could be getting my dates late off, but November 4th, the company announced three Q earnings and they say business is going great. The stock's at 35. They've actually bought back 1% of their shares over the past three or four months and they say, look, our stock is cheap. We run the John Malone playbook, right? We're going to, we've paid down our debt. We've got debt to reasonable levels, about two times leverage. We're going to keep buying back shares. One week later, they come out and they say, we're buying in our Guatemala minority. We're taking on, I'm going to use rough numbers. I think it was $2 billion of debt to buy in the

Guatemalan minorities. I could be off. But on top of that, you know, we're paying about $2.75 billion. We don't want to take our debt over three times leverage. So on top of the $2 billion in debt, we're going to take out a $750 million rights offering. And the CEO, I think every analyst says, this is a crazy good deal. They're getting it for, I think it was like six times EBDA. They know this asset. The CEO, I put a quote in the notes that says, this is as close to a no-brainer deal as it gets. No integration risk. We know the asset well. We're buying it for a great price, right? Everybody loves it. Well, guess what? It's a rights offering, which probably creates some overhang. Here, you and I are talking January 11th, you know, growth stocks, emerging market stocks, a lot of stocks.

It's been a strange market. But the stock prices we talk is about 27 versus 36 when they announced, right? So probably some rights overhang, but, you know, I do, you do have to question, I guess the question is, is there something I'm missing with the Guatemala asset that it's supposed to be a no-brenner deal, but the stocks down, you know, 25% on this news would be one. And I'll let you answer that and then I'm going to come back to the rights offering. Yeah, I think part of it is just the timing of it, right? I mean, you've got the question is, and I still think it's in people's mind, and it's a real question is, okay, the Omicron was just starting to go up at that time in the fall when they announced it. It was just starting in South Africa. And I think that's a huge uncertainty for any country that's any company that's in Latin America

is what's going to happen if one of these variants of these viruses turns out to be a lot worse than what people think. So I think that's a continued risk. And that's sort of what's happened there, too. And so I think that's part of it. But I think that's just endemic to most of Latin America from that perspective. And, you know, it's, I think it's a good, I think it's a good opportunity, but, you know, it's, we'll see over the longer term what really happens. I mean, you're going to get these shorter term, these shorter terms sort of ups and downs. But, But, you know, as long as the company continues to do what it needs to do, you know, I remember being involved or buying a company caller.

If you remember way back one called United GlobalCom and the issue between them and Liberty Media and the price volatility was crazy. I mean, it's just sometimes the price of these stocks just don't really reflect what's really going on. And a lot of this is what I found useful in those types of situations is found out who's on which side of the table and where are the incentives aligned? In this case, if you look at Millicom, the incentives are basically perfectly aligned with shareholders. And I think the incentives are aligned right, so I feel comfortable with it. I'm glad you mentioned incentives because,

hey, just to bring it back to this share price, like, I hate to be stock price focus, but you're now it's a deal on the stock's down 25% in a month and a half. Like, you do have to start asking, oh, is there something I'm missing with the deal? But let's talk incentives. I, and the right offering. I don't, I believe that they will announce Q4 earnings in mid-February. They're going to host an Investor Day a day or two later, and then they're going to run the rights off. Then they're going to run the rights offering after the investor day, after they've got all the information out into the market. I think that's right. You can tell me if I'm wrong, but my question was, we haven't seen the rights offering document or anything yet, have we? No, no, not yet. Okay. Because

anyone who's followed John Malone knows, John Malone companies, when they do rights offering, you have to do the rights, and you mentioned incentives, which is where I was going, I'm wondering if we're going to look through the rights offering and we're going to see, oh, it's, you know, management and directors have not only if they fully subscribe to the rights, they're oversubscribed, they're 50 times oversubscribed, you know, I'm really wondering if we're going to get that type of special situations here. And I would not be surprised because, yeah, again, you can look at my notes. The CEO, he's very clear.

We're going to grow cash flow per share over the long term. We are shareholder focused over the long term. You pay me to allocate capital. I would not be surprised if he's trying to get as many shares as you can. And six months from now, they pay down a little debt. And they're going with the levered buyback model at really attractive rates. No, no. I wouldn't be surprised at all.

I mean, like I said, I mean, the thing that I found unique about, about Milacom versus, let's say, other ones is they've actually have a, I think the country leaders actually have to take a certain portion of their salary and buy the shares. the open market. Now, you've seen that on, I've seen that on management teams. A lot of people will say that, okay, CEO's got to buy like five X's salary. The board has to have three X, which, by the way, they just take half their board fees every year and do it over seven years. Yeah. But very rarely, I've never seen it go down to the country manager level saying they have to buy a certain percentage. I mean, I think this team is really aligned. I mean, it's interesting because when I talk with one of the IR guys there, he said, you know, what's unusual is just hearing the conversations amongst some of the country leaders about the stock price. I mean,

they're really, I think what it really does more than anything else is it, is it focuses these country leaders on, okay, I've got a piece of this pie. What can I do to really increase the stock price and focus on doing good capital allocation and doing it really becomes real to them, right? I mean, if you're just, if you're just a hired person for someone else, it doesn't become as real than if you actually have a stake in it. And I think that's, what makes a big difference here is that is and that's been driven down and it really the nice thing about it it becomes almost like a reproducible type of a model you can actually you can you can you have a larger reach like that similar to when you think about okay the m&A model a constellation a lot of

that is okay you need to train people to do it the same thing here you have this idea of training people to do it and making it better and you can grow value that way so i think it's a it's a it's a real interesting incentive model the way they've sort of set it up. And it's unique, I think, in Latin America. I mean, Lilac, I would be surprised Lilac has a similar type of amount. I don't know if they go down to the country level. Milacom, I know it does, but I think it's a really, really neat thing to see it going on in an emerging market. I think listeners can probably tell, like, this is in my wheelhouse. It's really interesting. I'm pretty bullish on it. I'm not quite there yet. But I think let's just come back. But let me, let me throw some pushbacks at you that

are just kind of lingering in the back of my mind. First one, we just talked about management teams at the country level talking about the stock price. And I'll talk about the stock price in a second, but here's a hint, it's down and it's down into the right, right. It's not up into the right. It's down to the right. But, you know, when I hear about middle management talking about the stock price during

the day, the first things that come to my mind in the telecom space is management teams, especially middle manager teams, more focused on the stock price. It's the big blowups in telecom, right? You start thinking about WorldCom, where the WorldCom, they would walk in and the stock price would be everywhere. And WorldCom was a fraud. I'm hoping and I'm hoping and don't think there's a fraud. But you start worried about maybe they're more concerned about, you know, that than operating

day to day. How would you respond to that kind of risk that's brewing around in my mind? Well, I think there's two ways to think about it, right? I mean, one is more of saying, okay, these guys are going to take this right, look at, think it through and say, okay, how can I add more value? How can I make my share in the company worth more? The other one is more, okay, the short term, I'm going to try and sell and trade this thing. Well, these guys haven't been selling and trading.

I think the WorldCom could be, okay, you could actually see their behavior. I mean, they don't have any exit plan at this point. So I think that's part of, I think that makes the big difference too. And it's just being able to say, okay, what can I, because they're required to hold a certain number of shares. And it just doesn't make, you know, you can look at the, the inside. trade and it doesn't seem to be moving in that direction. So I think that's one aspect of it. But I think, you know, there's the way, I think the whole culture there is a long-term culture, making sure that that people are all aligned in the right way as opposed to being focused on

the short term. And I think we just see that just in the way that they, how they've even done this whole JV strategy, what they've really done with that, like you're saying, they know that the asset really well. They've got, they got different abilities and different, different ways to really show that, okay, I'm a long-term investor. And the thing I think that's very interesting about this business, one thing you can look at is in terms of, in terms of compensation. And compare them with like Lilac. A lot of the Liberty entities, people, managers make boatloads of money, which is great if the shareholders make a good amount of money, which in the most cases they do. So it turns out to be a win-win for everybody. If you look at Milacom,

okay, they have much more reasonable compensation than Lilac does. And so I think you've got sort of a situation where, you know, the focus is, is not, you know, there's pluses and minus is to offering people lots of money, right? You have to sort of be able, and I think Malone's done a really good job of filtering out people that are there for the money versus wanting to really do the job, right? And so in this case, you know, you know, it's probably it's probably a conversation for another podcast. I don't disagree with you, but I think if you look, Malone talks up David Azloff at Discovery. He talks up, he talks up freeze at Liberty Global. And he talked, and even Greg Maffa, and you know, Greg Maffa's done some spectacular deals. But if you look at the

past five years for all three of those guys, Discovery stock down over the past 10 years, discovery stock down. Liberty Global, flat for the past 10 years. Greg Maffa has really bungled a lot of things at Liberty, you know, Formula One's capital structure, trip advisors, disaster, Q rate, like a lot of things. And these guys, David Zazlov, somebody came to him was like, you're the highest paid CEO every year and your stock price is nothing. He was like, well, it's all stock. It's all stock comp. So I'm not making quite as much because the stock isn't going up. It's like, yeah, but you're making $50 million a year and your stock's flat every year. Like maybe you can do a little something for shareholders. So I hear you.

Random ran, but yeah. So, yeah, no, no. I mean, I, but, but I think if you compare the compensation plan, shareholders are getting a better deal, let's say, on a per share basis on Milacom versus, let's say, like a pure, you know, Malone type of entity like Lilac. And I think part of that's just sort of reflective of one of the areas that you take a look at and say, okay, these guys, but I think these guys are a big step up from working for, let's say, one, American mobile or something like that where you get no equity, right? I mean, so I mean, you're sort of, when you're in these kind of countries, you're sort of comparing, you know, okay, you've got two guys that are going to give you equity versus the ones that aren't and how does that really sort of play out in terms of what people do? But getting back to your original question, I think the guys have thought about the long-term incentives, their incentives are based on, you know, other metrics beyond just

the stock price. So if you look at the long-term metrics, they're based upon things like NPS. and other sorts of metrics, growth in cash flow, growth and growth in EBITDA and such like that. So I think there's sort of a balanced approach in terms of the way that the compensation is structured. But, I mean, in the end, you want the guys to basically get equity compensation because that's, in the end, you want to reward them for creating more value as a shareholder. So, I mean, I think that's, in my mind, I think that's the, that's the key difference. And if you look, if you truly just looked at the difference between the compensation structures.

But yeah, I mean, I think it's, you know, and it's, and it's probably a quantum of difference of having to live in Miami versus living in some of these countries in terms of living standards in terms of the money you get paid. So let me, let me go to my second question. And this is, you know, Liberty Ladam is famous as the widow maker for kind of eventy John Malone fans, right? In 2016, people said, oh, this is, they're going to go to the cable model from the 1970s in Latin America, right? They're going to roll everything up. Cable is way under penetrated into these Latin American markets. And the exact same thing could be said from Tigo, right? I posted a chart for 2021, how under-prenetrated broadband, 4G, data usage, everything is in these Latin American markets.

And the fact is, Lilac, Tigo, they've both been widow makers, right? I'm looking at a stock price and in 2015 Tigo stock and there's some volatility here, but Tigo stock was 72 and people probably would have said, oh, you know, it's kind of like seven times EBIT's pretty cheap and you get all of this, you get all of this growth from penetration increase and they can do acquisitions. You and I are sitting here talking today. The stock is 27. Now, COVID hit Latin American market's very hard.

But, you know, I think anybody could say 72 to 27 over five or six years. it's probably been a pretty disaster strip. So my second pushback would be, we've talked about this great story. We've talked about this growth. And it just hasn't played out over the past five years. So maybe the answer is, hey, guess what? Telecom and emerging markets, even though it seems great, it's really hard. People don't have a lot of income.

You've got to make really expensive fiber investments and people just don't have the income to support it. And there's lots of political risk. Like maybe we should just be sticking to charter, you know? I agree with the stock price. However, if you look at the underlying, you know, characteristics of cash flow and as such, it actually has grown, the markets have done, have done, so from an operational perspective, no, it's been hit by COVID. These markets have grown.

So, I mean, Tigo, I think, is back to where it was before pre-COVID in terms of growth of underlying cash flow and such like this. So I think the underlying business, I think what's happened in the interim is a lot of people have been burned by this. I mean, you can read on the internet, old stock, the exact pitch you said, it's seven times EBITDA, it's a reasonable company. We've got all these growth levers, all this other kind of stuff, and the stock goes down by, and the pain that you can feel in that. I mean, I've, I've sort of experienced those types of things in other types of investments that I've had in sort of media. Takes a long time, and the market doesn't, one specific area

that you can look at that over time has been, let's say, some of the broadcast TV companies, the local broadcast TV companies, they've been flat to down, but their cash flows have exploded. I mean, everybody thinks they're going to die. In this case, you have a bunch of people that just, I think there's just the other aspect of this, given that it's an emerging markets investment, as you say, is that is the flow of funds, right? I mean, emerging markets are driven by flow of funds of external back and forth as opposed to a bit more stable situation like in the U.S. So I think, given that TIGO is in this market, Lailac is in this market, you're going to be affected by these flows.

And I think the flows have really been poor into Latin America. And part of that, you can just see just the returns of all the companies in that market. But I think the key thing you need to look at is, okay, well, what's the underlying cash flow position of the businesses? And is that getting stronger or is it getting weaker? I think when you look in Milacom's case, you'll see in most, if not all, their markets. their revenue their their cash flow is up their margins are up you're seeing the operational leverage as these as these um products are being rolled out um but it's but but the COVID shock is real and it's something that that I think probably as an investor if you're in a developed country you say

okay well you know COVID comes along you're probably going to sell before you think okay how is this thing going to go through and what are you going to sell first you're going to sell things you don't understand maybe it's a further away that in essence probably does have more risk these Latin American companies no matter what they are versus versus let's say you're American so I'm just thinking of an investor that has TIGO as part of their his or her portfolio COVID hits what am I going to sell I may be more likely to sell so sell TIGO or someone other Latin American country, because I know they're going to get hit much harder than I am, even if it's down and then just move on.

And so I think it's going to take a while for confidence to return. I think it's slowly starting to do that. But I think that's where the opportunity lies. You're going to go from a sector in a group of countries that are not well liked right now to hopefully over time, more and more people will see things will improve folks, perceptions they'll change, and that will cause a rise in the stock price above, above what you could get in other types of investments. And so going back to your question about, okay, let's compare like Tigo to Charter or to

Altees or the U.S. players, I look at the Altees and the U.S. players already have a good amount of valuation sort of baked in. This one doesn't have a whole lot of expectations. Don't you say Altis has a good amount of value baked in? That's not. No, no, no, but Altis probably has more than Tigo does. I don't know, but, but I mean, not too many turns, though. No, no, no, no. I agree. I mean, the thing that I see with Altis is there's other,

the other issues. I just do it. I just, I know. Let me ask the last question. And this is both a risk and a question as I'm thinking about valuation, right? In 2019, in 2019, Lillac offered about $80 per share was their final bid for Tigo. And Tigo actually turned it down. And I, I refer to that both. as a risk in the fact, you know, even at the time, $80 per share, I think most people thought was pretty generous and there would be synergies to merging these two businesses. But I think most people thought that was a pretty full and fair offer and were kind of surprised that a deal couldn't get struck there. So the risk is, you know, we've talked about how these guys are shareholder focused. We've talked about how these guys are doing the right thing for the businesses. But then you see

them turn down a bid that I don't think many people thought was undervaluing the company. You know, they were probably getting full value plus some value of the synergies. You see them turn that down and you wonder, hey, do these guys really just want to hold on to their jobs? Do they really just want to empire build? Right. That's the risk. And then the counters to that is I want to say, and I mentioned this in my 2020 predictions.

I think that's what kind of spurred you and I to get on the horse and actually get the Stigo pod rolled up was, hey, I think a lot of these cable companies are cheap and you can look, a lot of them are trading way below what strategic acquires have made offers for recently. So the counterfeit debt would be, obviously this is a different business now. COVID's hit. There's going to be a rights offering. Everything looks a little different. But is there still like some signal of value from that $80 per share that was offered for a few years ago? I mean, I would think so. I mean, if you think about the two assets, I think they could be, in a combination, could be very, very synergistic. I mean, you have, you've got the more stable

assets and lilac in Chile and in Puerto Rico they're all US based you do have some volatility in the in the tourism based type stuff but a combination of the two would create a very interesting very interesting sort of combined company

right just from a perspective and maybe the reason why at the time maybe you know Tigo thought that that they were just sort of at the beginning of their of their transformation and of making this and they didn't see the full they wanted to have the full value reflected in in what the company could get i mean maybe it's more of a where the company was in its life cycle of you know i think they just at that time they probably just the kinevick thing the overhang associated with that the company was just starting to roll

and starting starting to get its trying to get its uh it's it's it's it's it's markets to work And you can see that. I mean, you can even see that. And like in some companies in the U.S., I held a company earlier this year, it started to get things working that our private equity came in and bought it out. I thought they underpaid by a whole bunch.

I think a lot of other shareholders did too, but that's a potential thing there. But you really don't know. I mean, COVID was sort of like a, I wouldn't say a black swamp, but maybe it really was. No one could really predict that that was going to happen in advance.

If COVID didn't happen, who knows? I mean, Tigo could be up in the hundreds. But that's not what happened. You've got to deal with what's happening today. And so to a certain extent, you know, I think from a long-term perspective, the combination of the two would be very interesting. Now, the question from Tigo's perspective is, so their option is, okay, we're going to take this offer or we think what we've got can actually continue to do better than that for shareholders. I think that was probably the calculation they made then and probably the calculation that they would make today from that perspective. But I think from a strategic perspective, it probably would be a very interesting combination.

Yeah. Look, I think we've covered most of my notes. Again, as we said at the beginning, we only got to really talk about Guatemala. And I'd say we probably could have talked to about Guatemala for another 15, 20 minutes. And then there were seven other markets. We didn't get a touch. Unfortunately, that's the issue. Some of these companies, Tigo, the issue with it is, it is pretty complex.

There's lots of work to do here. But that's also probably part of the opportunity. But before we wrap it up, though, I just want to make sure anything we did. hit that you think we should have hit anything that we did hit you think we should hit a little bit harder or anything um no i mean i think the main the main thing with tigo is i think it's just a real i think over time it can be a multi-bagger the real question is is you've got the they i think they've got the management when you look at what the cards the management team has been played they've done the best with the cards they've been played i think part of the issue in

that's one of the risks in most emerging markets investing is the card you're going to get played aren't optimal. And there's going to be a lot of challenges there beyond, let's say, the card you're going to be played in the United States. I think the biggest issue in the United States when it comes to these types of companies is competition. In Latin America, competition can be an issue, but then you've got other things that you wouldn't even think about having in the United States, like your whole economy collapsing because of COVID, right? I mean, in the United States, when you think about what did COVID do to cable companies, it made them stronger. The demand for their product went up.

Think about what happened in Latin America. The product, the demand for the product went down because the people were so poor and the economies were just, so it's sort of a, you know, two different, two different cases from that perspective. But I think, you know, and so I, you know, I think from a long, step back into a long term perspective, if you want to invest in a growing area of the world that I think has a really good positive aspect to it in terms of a lot of the onshoreing and those types of trends, I think this is an interesting way to play that in the fact that you're going to be able to, and in a group of countries that one has a decent, one of the biggest risks in emerging markets is currency. And so this is one of the few EM sort of companies I've seen that has a very good mitigant to that. In other words,

You know, when I went back and looked at 2000, the currency depreciation on EBITDA basis, the weighted average EBITDA basis is only 0.5% per year, which is very serious. You do worry about you're the turkey that it's zero point, like the old. What was the company? I can't remember the country, but, you know, their currency was fixed, and then they unexpectedly turned it to floating. The currency was down 15%. And you always have some FX broker who blows up on that, right?

So you do worry. Yeah, but I look at the big. The biggest, what I'd be concerned about there is if there was something going on. I mean, if I look at the biggest exposure here, it's Guatemala. And the real question you'd ask him, in Guatemala, is the remittance issue going to change? Do I think going forward, 10 years from now, are there going to be less remittances from the United States to Guatemala to keep the currency strong? It may actually, there may actually be more. I don't see anything to say that, okay, all of a sudden, a bunch of people that are in the United States are going to move to Guatemala and you're not going to get remittances anymore.

Yep. In my mind, I think you've got to take it. And so that in my mind, I think, is the biggest currency risk that you've got in these. You also, you've got the dollarized economies, which aren't. But the only other big one would be Columbia. Columbia is probably the one where they probably have the most company. It's the biggest market. They've got the most competition and the most currency risk associated with it.

But again, I think they're doing like what they did with this JV, with his grandma of JV. They've got a partner. they're working, they're getting to know them, they're working together. And so I think that's a very, I think that's a very unique way to really lower risk in terms of ways to reinvest your capital like you had mentioned before because you get to know the people. It's an asset you know. Whenever you do an acquisition, there's always a risk because you don't really know

what's on the other side and maybe where some of the skeletons are. You maybe get super excited about it. But if you develop a JV partnership over time, it really lowers your risk quite a. bit or you can figure out ways to mitigate that. I think that's what they're doing in a number of these cases. Perfect. Perfect. Well, I think we're going to have to wrap it up there, but I did notice about five or ten minutes ago, you slipped in the broadcasters, which are always an interesting space where I know you've done a lot of work there. So maybe we'll have to have you on to talk broadcasters. Oh, yeah. Broadcasting's really, I mean, it's, I would love to talk broadcasts.

Because I think there's some real interesting stuff going on there. I'd like to hear your views on that too. Yeah, you know, on the broadcasters, I'm always kicking myself because next star, it's, who's the CEO? Perry, Perry's the CEO there? I mean, he's, everything I've heard about him. He's just a total killer. And I've always looked at the stock.

And I think the first time I looked at it was when it was at 20. It's at 160 now. But, you know, I always come back to like, if you recreated the world today, would you create these broadcasters who own, who own stations that retransmits CBS or Fox or whatever in 33% of the country or something. And the answer is absolutely not. You go straight to consumers. CBS would own the whole thing. They're like as CBS is trying to push more and more to Paramount Plus, like it's just this really weird thing. And the second thing, and I've talked about this before is like, you know, Viacom. It keeps saying CBS because Viacom, CBS owns it. Viacom trades for like

seven times EBITA and Next Star trades for like nine times EBIT. Now, Next Star is a lot cleaner. They're going to do a, they're just going to buyback shares like crazy. But next star is a lot more. kind of at risk in the terminal value sense than Viacom is, I would say. I've changed my opinion on that recently. What's really happened in that space, you really need to focus on what is ATSC 3.0 going to do? ATSC 3.0, I mean, according to the latest information that's out there, even Sucs presentation. Now, people say that that may be pie in the sky, but when you think about what is the value of a free channel,

to, in terms of the overall that, it could be tremendous. Another thing to think about is look at scripts. Scripts is a company where their focus historically has been as they could be in any space. They could be in podcasts. They could be in, they could be in newsprint media. They could be in TV. What have they decided to do? They got rid of their print.

They sold their podcast. They're focusing on media and they're focusing on, all those three things. this is where they think the huge value is. I think the key thing is, like you're saying, right now these things are selling for so cheap that, like, for example, Gray is selling for three times free cash flow. Next star is selling for five times free cash flow. All you need to do is you need to say that the revenues and the cash flows are not going to decline. They'll sell for 10 times.

Then all you need to do is if any of the stuff even happens, you can get 4 to 5% growth, these things are going to sell for 15 to 20 times. And so all of a sudden, it's a giant call option, right? I mean, again, you deal with the sizing issues. But think about this. ATSC is going to be in every single TV in five years. You know, I don't know. I've been hearing Sinclair talking about it for years.

I get it, but like, okay, you get a free channel. It's going to be on, but you need something to get people's attention, right? Like, for me, when I turn the TV on, the first thing I do is I go to Netflix. Like, it doesn't matter if there's a free channel on the thing if all the content I want to watch is on Netflix or Disney Plus. Now, there are sports, but like, NextR can't afford sports. NextR gets sports because they license from CBS. Like, if CBS is going to put all their sports, I don't know. I just, I'm with you their shit.

I'm not saying they're going to be the next foot and they don't have to be. I'm not even saying they can be the next Roku. But if you look at the valuations, all they got to be is 20% of those with a new channel with somebody says, okay, I'm a content provider. I'm going to provide it on this new channel. Am I going to try and go through a net flex? These other ones that are going to charge me a lot of money. It's just an additional channel that right now is not being priced into anything.

Yeah, but we'll have to end it here because we're way off. I know. I hear you like, hey, there's this free channel. I'm going to put my stuff on it. But if you're, if you're talent, like, do you really want to have your show on ATS? Like, I always look back, there was a, there was the show. that was on some AT&T, this was before they bought Warner Brothers, some AT&T your own channel was called Mr. Mercedes and it had like an Oscar winner as the, as the star,

you know, it had a great, they paid up for it, they put a huge money, but nobody knew where this channel was. So nobody watched the show. But you know, you look at things on Netflix, Netflix can, Cobra Kai, right? Nobody watches on YouTube TV, but it gets on Netflix. Like the key is you need people to actually be watching. So I don't know, it's a conversation. I guess, I'm more confident in the future that search is going to not allow one guy to sort of dominate and you're going to have this whole sheet and you're going to be able to choose. I guess I'm more confident the technology is going to say, okay, here's your 20 options. You can choose what you want as opposed to, because if you're going back to, okay, Netflix, then does Netflix become

like the old broadcast TV networks or is it going to be, there's going to be more choice and you're going to be able to choose, and the market's going to continue to fragment. In my mind, in my mind, I think it's maybe more of the latter. And then if that's the case, then these channels become worth something greater than zero. The whole point at this point is I think that right now, these businesses are priced to go into terminal decline, right?

Yeah, no, and look, again, five years ago, the risk with Next Star was people were saying, I would have said the same thing I would have said. They're really cheap. Now, they did have growth out opportunities that they don't have currently in terms of they weren't fully penetrated. They could do acquisitions. But five years ago, I said, these are really cheap, but I'm worried about the future.

And guess what? They cash flowed their whole market cap in five years. They bought back in some of shares. They did some great acquisition and the stocks up paid out. And those were the first big for me. And maybe it's just personally from my experience back then was where I made my first big gains, multi-baggers, was from these companies. And so I feel we're in a very similar period now.

We'll sort of see what happens. But like you're saying, I mean, when I see signals, guys like, scripts who have a choice of where they want to go, and they choose to go into this. That, to me, speaks about it. Your counter is Sinclair had a choice, and they chose to go into the R.S. I agree with you 100% Sinclair. I'm not, Sinclair, of the broadcasters, Sinclair is way down my list, and I never invest with them, but Scripps is a different, different animal, I think.

Yeah. And so, I mean, I understand your issues with Sinclair, and I would never invest with them, at least now, unless things change, because it always seemed to be a family-run business that did all these little side deals that never made. We did a, I did a post on when there, it was the Tribune merger where all the documents came out with what they were saying to the FCC, and I just think that management team is flat out on investable, even though it's probably pretty interesting right now because they're doing some pretty crazy stuff in a sheet, but this will have to be a conversation

for another podcast. Keith Smith, it was great having you on. I'll include his link to his Twitter account in the show notes. So if anybody wants to reach out to Keith on there, they can go ahead and do that. But Keith, it was great having you on and looking forward to the next one. All right, thanks.