Mexican Telecom giant,
America Movil S.A.B
) has increased its share repurchase fund by 40 billion pesos
($3.2 billion). In addition, the company also announced dividend
payments of 22 Mexican cents per share paid in two
The company's conviction in enhancing shareholders return
upholds its position as a leading carrier in Mexico and one of
the top wireless providers in entire Latin America. However, we
believe the acceleration in share repurchase remains a strategic
move to safeguard America Movil's market value, which is hit by
the proposed regulatory bill in Mexico.
Last week, Mexican President Enrique Pena Nieto proposed a new
bill that highlights several measures to reform its telecom and
television industry. The main objective of introducing this bill
is to bring more uniformity and transparency into the sector and
curb concentration of power that lies with predominate players,
which dictate market behavior.
However, the proposal has struck the Mexican telecom and
television industry on a discordant note as it unfavorably
targets giant corporations - America Movil and
Grupo Televisa S.A.
). The proposal stresses on the implementation of the asymmetric
regulations that faced severe condemnation by America Movil.
The rule implies that predominant players that control
majority of the market share, like America Movil, will have to
pay higher mobile termination rates (MTRs) to smaller peers while
receive lesser amounts from them for network interconnection.
Through Telcel and Telmex, America Movil commands about 70%
market share, while the Spanish wireless operator
) controls nearly 22% of the Mexican market share.
Following this ruling, America Movil experienced a significant
decline in its share price that swept of billions of dollars in
its market valuation. The worst so far has been a decline
of $5 billion on Wednesday last week, after the government
declared its policy on telecom regulation on Monday.
Since then the company has aggressively followed a share
repurchase policy to mend the loss. According to market reports,
the company has executed a one-day buyback of 75 million shares
Tuesday, representing its biggest one-day buyback of the year.
Overall, the company expended approximately MXN$5.286 billion to
buy back its shares after announcing dismal fourth quarter 2012
results on Feb 12.
Although the company's buyback policies remain in favor of its
investors, it is important to note that increased disbursement of
cash in investor returns may disrupt America Movil's expansion
policies, which currently hovers around deploying LTE networks
and expanding wireless data services.
America Movil has a Zacks Rank #5, implying a Strong Sell rating.
Mobile Telesystems OJSC
), with Zacks Rank #1 (Strong Buy) is another stock in this
sector, which we believe is worth considering.
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