Podcast #91: Keith Smith thinks $TIGO is a cheap special situation

Keith Smith goes through his TIGO investment thesis. TIGO is very cheap, and a recent acquisition the CEO described as “a no brainer” will result in a rights offering that may have created an overhang on that stock as well as turning it into an interesting special situation. You can find my notes on TIGO here.

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Transcript begins below

Andrew Walker: All right. Hello, and welcome to the Yet Another Value Podcast. I'm your host, Andrew Walker. With me today, I'm excited to have Keith Smith. Keith is a portfolio manager at Bonhoeffer Capital. Keith, how's it going?

Keith Smith: Good. How are you doing, Andrew?

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 about this podcast. I'm ready to get going.

Let me start this podcast the way do every podcast. First, a disclaimer is to remind everyone, nothing we talked 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 than normal. So, just remember to 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 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 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 only buy things at five times EBITDA". You do that but you also have real qualitative work behind it. So, really excited to talk today. Then 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?

Keith: Sure. And thanks to you, Andrew. TIGO is a really interesting combination. You said it's a company that is not as a lot of quality reasons and growth-based reasons for why it should sell for a lot more than it is. I mean, historically, I started out primarily just finding and focusing on multiples. But when I've migrated on, now to more is to try to find companies that have a growth story behind them.

And being able to take advantage of the operational leverage in the business to create faster EPS than revenue growth. And this is clearly the case here, as TIGO is a Cable/Wireless company. This thing is the company's been described as they're building a charter under a horizon 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 similar to the cable companies are doing in the US, 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 not only the cable that they're building but then, from the mobile network on top, in addition too.

So, there are some really interesting dynamics, the margins and some of these businesses are really high. They are basically, recently in a position to buy the asset they own in Guatemala, it has like 50 percent 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 Millicom is actually located or TIGO, most of the markets, 67% of the EBITDA's in markets where there are only two competitors. And one of the key things that I've seen in sort of Fibre Broadband types of companies is you want to limit competition. You can get it at markets with zero or one competitor, you can get some decent margins.

When you start to get two, three, four, five competitors, all of a sudden the margins really can get destroyed. So, if you're looking at this business that has 67% of its EBITDA in countries where there are only two competitors in themselves and someone else in most of the cases they're the dominant competitors.

So, they'll be the one that has the biggest share. So, those are the kinds of situations and they also have a lot of local contacts in a number of 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 in Lilac who were more what I would say US/Swedish government. Millicom is based in Sweden. Both of these countries have Western governance. The terms of the way they run their business, the way they think about business. They're competing against incumbent Latin American Spanish companies. We have a different way of thinking about things.

You can clearly see it in the equity compensation, who gets equity? How far does the equity go down the management chain? So, if you look at a traditional company like Telefonica or even American Movil, the top managers are pretty much controlling the business.

In both this company in Lilac, the top managers have basically, equity compensation, but actually in Millicom cases the same thing in. A lot of cases are 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 it creates some very interesting centers for people and basically, for people to be more creative and to actually do the capital allocation. I mean, with Millicom, they've sort of developed that to the point where actually the country managers are in charge of capital allocation.

Though basically, the CEO has taken that function that normally would be done at the top office and pushed it down, which is very important. If you look at companies like, you know, a lot of these sort of serial acquirers people like constellations. There are these guys, their focus is to try to develop teams that can do MNA. This is the same thing going on at Telecom, which I think makes it in big contrast to the traditional players are in this market and creates, I think it 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 thing, especially when it comes to some of the Latin American markets. What's very interesting about Millicom 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 point five percent per year versus the dollar.

Primarily, that's because the countries that are doing businesses are either dollar-denominated countries like Bolivia or El Salvador or they basically have very strong currencies like Guatemala. And Guatemala, the currency is the quetzal, but their currency is very strong because the remittances to Guatemala from the United States are three times their exports. And so, it's a very stable currency similar to the Philippine peso, they have a lot of expatriates in the U.S. So, that leads to a very stable currency situation, which I think is unusual for most EM types of situations.

On top of that, with the other risk in a lot of Emerging Markets is what I'd say is sort of political uncertainty. Now, there have been people who have actually the model has actually put together, a pretty good model for this. He's said, an NYU Professor to figure out, "Okay. Well, what are the implied country risk premiums for these various countries"? Now, if you do that analysis with Millicom and you will be based on a weighted average EBITDA again, the multiple at Millicom if you compared to let's say a U.S. company using that framework, you get roughly about two-thirds of what the 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 Millicom.

And that includes both incorporating the political aspect, which is independent of currency, and the currency aspect of it going down point five percent 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 this business, okay, it's a great business. I really like it. How much should I really pay for this versus 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 use something like that, the company just has some really interesting aspects. Just to give you a little role in terms of how do we get here? Why is this thing so cheap? This other company Lilac has a lot of similar sort of characteristics but what happened with this company was primarily owned by a Swedish conglomerate called Kennebec. They basically sold off their shares and as they sold off the shares over some pressure on the shares, at the same time the company actually started trading on the NASDAQ.

And so what happened, there's a large decline and in a sort of there's a large overhang that hit the market. And then what happened after, this was probably like 2008-2009 then COVID hit.

So, COVID hit Latin America much harder than it did the rest of the world is because of its lack of Health infrastructure. And so, it got really got hit by COVID. And so, between those time frames, they had actually the overhang, they started it to grow, they got hit by COVID and then just knocked everything back down.

And then now they're recovering again. So the point where they're recovering as long as there isn't something crazy going on with COVID in Latin America, these guys have a nice tailwind happening now because as a result of COVID actually, 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. If the government wanted to cash out to, and a lot of these countries, there's a lot of unbanked population and the way that I can get cash to them is via the phone like what they've done, like what's happening in Africa.

So they've really become more ingratiated to some of these governments by basically doing this in providing the service. The nice thing that I like about Millicom versus other larger telecoms is I would say they're really competing and more what I would call secondary markets, the only large Market in Latin America, they are really competing in is in Colombia. In that market, they do have a lot more competition than they do in these other markets, but there are other large markets that they have are primarily in 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 said they also have a lot of JV's that they hooked. They basically allied with local mobile providers in those markets.

I think 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 really interesting opportunity because I really think Latin America is really going to especially Central America should really get a big boost up as the United States. There's a lot of the stuff from China and other 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. On top of all this.

Andrew: Let's actually pause there, because you've already run through so much.

Keith: I know I'm sorry.

Andrew: And a lot of things you talk to other things I want to dive into it. So there are examples there because we've done so much. So what 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, who are watching us. And I thought there were two 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 listen to this podcast probably know, I've done quite a bit. It's very John Malone-like. And you know, Mauricio, who is the CEO gear, that's not a coincidence, right? He's got a history with Liberty Global, which is John Malone's European Adventure. 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 that used to be owned by a Swedish conglomerate, they think sleepy Latin American cable company, like, "No, these guys are running a very western chartered like a 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 verse Westernized culture and our American versus kind of Latin was 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 one of the key differentiators for TIGO versus their competitors?

Keith: I think so. In some of these Latin American countries, I mean, if you think about the ability in some cultures to actually some people really culturally like in American culture, but they're in a different culture, right? I mean, you're in Asia, some people with Asian cultures really can't stand the structure aspect of Asian cultures than a lot of who will immigrate to the United States. And while if they were in that, the culture and they have the opportunity to express that ability, I think the same thing could happen in Latin America.

People are different everywhere, right? I mean, you're going to a certain group of people that are probably will be more drawn to something like this and 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 want to do something different, who may say, "Okay. Well, I can basically who are 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.

I think there is some stuff in 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 that I see between Lilac and Millicom in terms of the way that they do so. I mean if you look at it, it's very interesting because actually they even have like a Millicom cheer, you know, and it's kind of said it's really if you get...

Andrew: I saw they talked about that in your presentation and I was rolling my eyes so much.

Keith: I think it's got a part of that land culture that it's just. Yeah. Which I think is great. It's really reflective of 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 a hyacinth MPS as one of the focus things that they have to the management incentives. So they're really trying to provide. Serving the customer is sort of like what their focus is. And I think this can really be in contrast to a larger Telecom we're working in Guatemala compared to their big picture. Really doesn't mean a whole lot, right? I mean you have your Telefonica or if you're even in an American Movil. I mean Guatemala is a tiny piece but to them, that's a Millicom. It's a really big piece. That's probably their largest cut...

Andrew: Guatemala has 40 or 50% of the EBITDA, and I think that's before the merger will probably talk about or probably a little bit more after. Okay. So let me ask the second question and you just said, you even started comparing. You talked about "Hey, you know, I've got a model or I use some models that say a company with TIGO's Emerging Market racial should trade for about 75% of what a US telecom trade for". And 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 ILX like a frontier, a Lumen[?], which probably trade for four or five times EBITDA. And yes, a lot of people will look at them and say, "Oh well, copper DSLs. It's that's declining but they've actually got a lot of growth assets, a lot of growth through building out fibers at home, which I think can be very creative. You know, the returns are the jury's still 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 ILX in the US. You can go join me and be a perennial bag, holder, and Altice, which probably trades for 6-7 times EBITDA right now. Not that much more than TIGO. The risk there is Altice management. It's not an Emerging Market risk.

So very cheap in a domestic market or there's Lilac which yes, TIGO runs a John Malone Liberty style Playbook, but 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 they were about to, and then they did the deal. We'll talk about another kind of a deleveraging 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.

Keith: Well, I mean, the one thing that I think about TIGO is, let's compare to somewhat somebody like Lilac. I think if you look at the underlying portfolio of what the companies have their differences, they're not quite the same. I mean TIGO is focused on sort of what I would say our Central and Latin American countries that have a long-term secular growth story beyond. So, you've got this underlying growth in outsourcing their secondary countries. Now, if you look at Lilac's footprint, Lilac's footprint is primarily Puerto Rico, the Caribbean, and Chile.

If you look in the secular growth for those areas, it is 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, TIGO has been able to do better at least historically hopefully going forward both of them will be able to do this, has been done a better job of converting EBITDA or free cash flow, but in essence.

And so I think the other thing that's one additional sort of factor in Lilac's cases since they do have so many Caribbean countries that basically they have the other hurricane risk, right? Which is needed to continue to get as time goes on. It's something that's not going to go away. It's probably even going to get worse. And so, that's something that I mean, I guess the worst hurricane that can hit Millicom would be possibly Guatemala and Honduras but it's not near like what a hurricane going through Puerto Rico would do for Lilacs.

Andrew: No, 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 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.

Keith: And I don't think that's going to stop. I mean maybe they figured out a way to prevent that from happening. But I mean in those areas, I think that's an additional risk. So that would probably be the contrast. And Millicom's got a little bit from a political risk perspective, I think they're probably comparable from an environmental risk perspective. Maybe Milk has 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 US businesses, I think the big thing in my mind is competition. The competition in the markets that Millicom 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 who only have one or two choices, that's how the cable companies have been able to do so well, for so long it doesn't really have any competition. If you don't have competition, you can create tons of profits. And so that's where I really look for. And that's in this case, we've got 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 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 is 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 don't like for here in Rochester, we have Charter Spectrum. We've got a new guy that's come in green light and we Frontiers 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 can look at it and you just say, okay, maybe Rochester's an unusual microcosm, but I mean, there were people in Rochester that would just sort of sit there and basically will give petitions to the town.

And basically, they would actually bound take their own time, go out and collect other people in the neighborhood to get people to get away from Spectrum in Charter with 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 are finally given a choice will sort of see, well, hopefully, that'll bring up everybody's game. Everyone will get better service as opposed to historically, what's that?

That's why I think another key aspect of Millicom 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 coming back to customer service. You can provide poor customer service for you don't have any competition, but I think the days of that happening is going to become less and less over time.

Andrew: As I said, with Altice, 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 50-50 duopoly, then the cable provider in love their markets and their customer service was so bad, despite the fact they had fiber which is a superior asset of cable and was far superior 5 or 7 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 a 9% market share with disappearing assets in 5-7 years is mind-boggling. And it goes to show, I mean it takes a while but eventually, it does catch up to you if your customer service support.

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 the right 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. People can go look at it, I'll put my notes on Twitter. I'll put those links in the show notes or Ben Claremon over on the Compounders 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 and all of their markets which if they're successful, go look at the evaluations for Fintech, maybe not so much today, as 3 months or 6 months ago, but if they're successful it can 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.

Keith: Sure. Yeah. So I mean, like saying TIGO money has been popular in Africa, they had that maybe I don't know [crosstalk] [unintelligible].

Andrew: Great point.

Keith: But well, I kind of just to give you a little bit of history, when I started out, it was a combination of an African and Latin American Telecom. The decision was made I think when Mauricio came around the same time as they wanted to divest the African assets and focus on the Latin American assets. And so with that decision, they came with it, a lot of the TIGO assets in Africa do have a sort of mobile money because that's 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 70-80% of the people are unbanked.

And so all these unbanked people how are they going to, historically would be a cash economy, but what's happened is they've developed a lot of these mobile devices. Mobile telephones were 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, the nice thing again about TIGO being in these 2nd and 3rd tier countries, there's not as much competition. When you hear about all the Fintechs, all of Fintechs are in Brazil, Colombia, and Argentina, and it's a big country. So there's tons of competition.

While TIGO can be a big guy in Guatemala. I mean, there's no one else is 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 all around. It's all country-by-country and you have the relationships in the countries, which I think is a very important piece that TIGO has is they've got, they have relationships with the Telecom folks in the country and in 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 a little, like localized markets as opposed to a much broader market which creates a bunch of these local duopolies in Telecom and even like maybe almost like a let's say, a monopoly, but very close to it in a lot of these countries.

The other thing they've done is that in these countries, TIGO has provided sort of remittances or the ability of the government to get money out to people in a relatively quick way and that's done two things. That's basically your proof of concept. This thing actually works, but second, during "Gratia" in themselves to the government's, because this is an easy way for the government to say, "Okay, I want to send a bunch of quetzals to people they're having problems with COVID." Just tell me where I go out and we'll just go to Central Bank. Just send 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 good access to that. And again, it's sort of you know, I would say it really is not a competitive environment that's what I really like to try to look for companies is where there isn't a competition. The competition probably destroyed more profits than anything else. 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 buy.

Andrew: 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, all everything you just said, they got from, 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 look in the US, it is really hard to go get hundreds of franchise chains. But you know, what's even harder is go to Guatemala and get like, the mom and pop corner store there to get accepted.

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 communicate 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 off. 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 creating something that could be really valuable.

Keith: Oh, yeah. I mean, one way I look at it is to say, okay. Let's say look at it versus let's say a number of users are some of these Neil Banks. I mean, so you probably can get potential barriers. Again, this is really more speculative on this one versus let's say like, the towers and the data centers which are probably much harder. Again, some are an asset that they can spin-off. But in this case, you probably could get potentially get a value of, I'm thinking one after two billion dollars if you do it on a per-user basis.

They're not at that scale now. That's the potential if they can roll this out in that 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 these 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 or 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 that this investment where the reported numbers weren't the reported numbers because one of their large, I mean almost like 40 percent-plus of their EBITDA wasn't even consolidated because it's part of this JV 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 a probably most profitable part of the business in addition to that. I mean in Guatemala, they're making fifty percent plus EBITDA margins.

Andrew: 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 an upfront investment, but generally you go and you build networks and your returns are great. And when you build the networks and increase the value of their overall networks, you get a little bit more operating leverage and TIGO is 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 clears that up, which is great. So I think that's a great transition. You know, the big market here, there are about five markets that each makes up 10% of EBITDA.

I think it's Bolivia, Paraguay, Colombia Panama, Honduras, El Salvador, but the big market here, is Guatemala, right? And just in November, they announced a deal. As you said, they're buying into 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 in Guatemala. We can talk about the deal. We can talk about what you think about Guatemala, the Guatemala Market, we can talk about the rights offering they used to do. It's just everything, but in 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.

Keith: Sure. I think it's a great opportunity. If you look at the three areas, where they could potentially benefit. The other thing about this business is okay, historically, they've done relatively well, and the nice thing about the businesses is they have a lot of reinvestment opportunities. A lot of people talk about compounders in the issue in some companies as they create large returns on capital, but there are 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...

Andrew: 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 partner. So they'll take the capital buy him out, hundred percent 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, that hopefully, they get a good price for it, but they're reinvestment because they're getting full ownership of the network.

Keith: Exactly. And so that's the great thing that they work with these guys are operating these networks. They know exactly what it is. So from Guatemala's perspective, 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 guys, but if you look at the business in Guatemala, the EBITDA margins are 50%. And 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 guys, like 35%. So they're hugely mobile.

With the Broadband, they're number 2, but the number 1 guys like 45 and there 40. So, I mean, they're pretty close in that. So, in essence, what you've got is that you've got a situation where with continued investment in Guatemala, it can be a great investment. And like you're saying, I mean, the nice thing about, I really appreciate about Millicom is the rights offering and you know, almost a John Malone asked type approach to getting shareholders involved. Basically saying, okay. We need capital. What's the fairest way to give capitalist shareholders? We're going to do a rights offering. We're not just talking 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 rights offering to shareholders.

So existing shareholders and basically take advantage of this opportunity along with us. And so I really like that aspect of it. I mean, Malone is done a lot of that really had influence with that but I think in my mind 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 out a whole lot of debt. And so I think that's what's really driven the rights offering.

And then, in addition, you know, that they're in the process of paying down debt over time. As they do that, then they'll probably think that 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 overtime thing that they're basically going to be doing. And so it's not really one big one. But I think like saying it, 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 you get. 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 a lot riskier to buy some 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 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. Are there 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 catalyze people to start to take a look at it.

Andrew: So, let's talk about the rights offering. So the rights offering, I believe I could be getting my dates like the of. But November 4th, the company announced 3Q earnings and they say business is going great. The stocks are 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've paid down our debt. We've got that 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 two billion of debt to buy in the Guatemala minorities. I could be all, but on top of that, you know, we're paying about two and a half or 2.75 billion. We don't want to take our debt over 3 times leverage. So on top of the 2 billion in debt, we're going to take out a 750 million dollar 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 6 times EBITDA. They know this asset. The CEO, I put a quote in the notes that say 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 that probably creates some overhang. Here, you and I are talking January 11th, you know, growth stocks Emerging Market's out, a lot of stocks. It's been a strange market but the stock prices we talked about are 27 versus 36 when they announce, right? So probably some rights overhang, but you know, you do have to question. I guess the question is, is there something I'm missing with Guatemala? I said that it's supposed to be a no-brainer deal, but the stock's down, 25% on this news would be one and I'll let you answer that, and I'm going to come back to the rights offering.

Keith: 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 minds. It's a real question is okay. 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 competence 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 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, I think it's a good opportunity, but, you know, we'll see over the longer-term what really happens. I mean, you're going to get this shorter-term sort of ups and downs. But as long as the company continues to do what it needs to do, I remember being involved or buying a company called are, if you remember way back when it comes to United Global Com and the issue between them and Liberty Media, and the price volatility was crazy. I mean, sometimes the price of these stocks just doesn't really reflect what's really going on.

And a lot of this is what I found useful in those types of situations, as 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.

Andrew: I'm glad you mentioned incentives because, just to bring it back to the share price like, I hate to be stock price brokers but you announced 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 Seal, but let's talk incentives? In the rights offering, 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 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?

Keith: No, not yet.

Andrew: 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 have they fully subscribed to the rights, they're oversubscribed, they're 50 times oversubscribed. I'm really wondering if we're going to get that type of special situation here. And I would not be surprised because again, you can look at my notes to see how he's very clear.

We're going to grow cash flow per share over the long term. We are the shareholder's focus over the long term. You pay me to allocate capital. I would not be surprised if he's trying to get as many shares of you can and six months from now they paid on a little debt and they're going with the lever by that model at really attractive breaks.

Keith: No. I wouldn't be surprised at all. I mean, the thing that I found unique about Millicom versus let's say other ones is they've actually had, I think the country leaders actually have to take a certain portion of their salary and buy the shares in the open market. Now I've seen that on management teams. A lot of people will say that okay, CEOs got it by like 5x salary.

Andrew: The board has to have 3x which by the way, they just take half their Board PEAs[?] every year and do it over seven years. Yeah.

Keith: But very rarely. I've never seen, go down to the country manager level saying, they have to buy a certain percentage. So I mean, I think this team is really aligned. I mean, it's interesting because when I talked 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 where it really does more than anything else. 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 it really becomes real to them, right?

I mean if you're just a hired person for someone else, it doesn't become as real, then if you actually have a stake in it and I think that's what makes a big difference here is that's been driven down. The nice thing about it, it becomes almost like a reproducible type of model. You have a larger reach like that, similar to when you think about okay, the MNA 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 really interesting incentive model, the way they've sort of set it up and it's unique I think in Latin America. I mean, I would be surprised as a similar type of and I don't know if they go down to the country level of Millicom, I know it does. But I think it's a really neat thing to see you going on an Emerging Market.

Andrew: 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 on. Let me throw some pushback that is 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 into the right, right? It's not up to the right. It's down to the right.

But you know, what I hear middle management talking about the stock price during the day, the first thing that comes to my mind in the telecom space is management teams, especially middle manager teams more focused on the stock price, it's the big blow-ups in telecom, right? You start thinking about Worldcom, wherein the Worldcom they would walk in and the stock price would be ever. And the welcome was a fraud. I'm hoping in, I don't think this a fraud, but you start worrying about, maybe they're more concerned about that than operating day-to-day. How would you respond to that kind of risk that's brewing around in my mind?

Keith: Well, I think there are 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 makes a 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 in, it just doesn't make...

You can look at the entire trade and it doesn't seem to be moving in that direction. So I think that's one aspect of it. But the way I think the whole culture there is a long-term culture making sure that the 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 haven't even done this whole JV strategy. What they've really done with that like you're saying there. They know that the asset really well, they've got different abilities, 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, I think you can look at is in terms of compensation.

And compare them with Lilac, while Liberty entities people managers make boatloads of money, which is great if the shareholders make a good amount of money. In which most cases they do, so it turns out to be a win-win for everybody. If you look at Millicom, okay, they have much more reasonable compensation than Lilac does. And so I think you've got sort of a situation where the focus is not, you know, there are pluses and minuses to offering people lots of money, right? You have to sort of being able to, 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...

Andrew: You know, it's probably a conversation for another podcast. I don't disagree with you. But I think if you look Malone talk some David Zaslav of Discovery, he talked us up freeze at Liberty Global and even Greg Maffei. And Greg Maffei has 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. Liberty Global flat for the past 10 years.

Greg Maffei has really bungled a lot of things at Liberty, you know. Formula one's capital structure Tripadvisor disaster, Curate[?] like a lot of things. And these guys, David Zaslav, somebody came to him was like, you're the highest-paid CEO every year in your stock price is nothing. He was like, well, it's all stock up. 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 in your stocks flat every year. Like maybe you can do a little something for shareholders. So I hear, randomly.

Keith: But yeah. So, I mean I think if you compare the Compensation Plan shareholders are getting a better deal. Let's say on a per-share basis. When Millicom versus, let's say, like a pure, Malone-type of an entity like Lilac. I think part of that is 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 Movil, or something like that, why you get no equity, right? I mean you sort of when you're in these kinds of countries, you're sort of comparing, okay, you 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 other metrics beyond, just the stock price. So, if we look at the long-term metrics are based upon things like MPS and other sorts of metrics growth and cash flow growth. 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, in my mind I think that's the key difference. If you're truly just look at the difference between the compensation structures. But yeah, I mean, I think it's, you know, and it's probably a quantum of difference of having to live in Miami versus living some of these countries in terms of living standards in terms of the amount you get paid.

Andrew: Let me go to my second question. And this is, you know, Liberty Lat Am is famous as the widow maker for kind of aventi[?] John Malone fans. Right? In 2016, people said, "Oh, they're going to go to the cable model from the 1970s in Latin America," right? They're going to roll everything up. The 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-penetrated Broadband, 4G data usage. Everything is in these Latin American markets. And the fact is Lilac, TIGO, they've both been widow-makers. Right now, 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 EBITDA. It's pretty cheap and 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 markets very hard. But you know, I think anybody could say, 72 to 27 over 5 or 6 years, it's probably been a pretty disastrous trip. So my second push back would be, we've talked about this great story. We've talked about this growth and talk about all this and it just hasn't been over the past 5 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 are lots of political risks, like, maybe we should just be sticking to Charter, you know.

Keith: I agree with the stock price. However, if you look at the underlying, you know, characteristics of cash flow and the such, it actually has grown the markets 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 in such like this, 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 sort of experienced those types of things and other types of investments that I've had in certain media, takes a long time in the market, one specific area that you can look at that over time has been let's say some of the broadcast TV companies, right? The local broadcast TV companies. They then flat the down, but their cash flows had exploded. I mean, everybody thinks they're going to die. In this case, you have a bunch of people that just 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 the flow of funds of external back and forth as opposed to the more stable situation like in the U.S.

So I think given that TIGO is in this market, Lilac 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 return. So all the companies in that market, but the key thing you need to look at is. Okay. Well, what's the underlying cash flow position of the businesses? Is that getting stronger? Or is it getting weaker? I think when you look in Millicom's case, you'll see in most, if not all their markets, the revenue, their cash flow is up. Their margins are up. You're seeing the operational leverage as these products are being rolled out.

But the COVID shock is real and it's something that I think probably is 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's 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 that's further away. In essence, probably does have more risk, these Latin American companies, no matter what they are versus, let's say you're American.

I'm just thinking of an investor that has TIGO as part of his or her portfolio. COVID hits, what am I going to sell? And I may be more likely to sell, so sell TIGO or some other Latin American countries. 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 and group of countries that are not well-liked right now. Hopefully over time more and more people will see things will improve, folks' perceptions will change and that will cause a rise in the stock price 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 Altice or the US Players. Yeah, I look at the Altice, the US Players already have a good amount of valuation sort of baked in. This one doesn't have a whole lot of acts that they showed...

Andrew: Don't you say Altice has a good amount of value baked in and that sucks.

Keith: Altice probably has more than TIGO does.

Andrew: I don't know, but it's not too many turns though.

Keith: No, I agree. The thing that I see with Altice is that there's another valuation[?]...

Andrew: I just teased.

Keith: I know.

Andrew: Let me just ask the last question. And this is both a risk and a question as I'm thinking about evaluation, right? In 2019, Lilac offered about $80 per share as their final bid for TIGO. And TIGO actually turned it down. And I refer to that both as a risk in the fact. 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 we're kind of surprised that a deal couldn't get stuck there.

So the risk is, we've talked about how these guys are shareholders focus, 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 undervalued by the company, you know, they were probably getting full value plus some value 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? To that's the risk and then the counter to that is I want to say, and I mentioned this in my 2022 predictions.

I think that's what kind of splurge[?] you. And I said, get on the horse and actually get this dealer pod, rolled up was, hey, I think a lot of these cable companies are cheap, and you can look a lot of their trading way below. What is strategic acquires have made offers for recently? So, the counters that would be obvious, 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 some signal of value from that $80 per share that was offered a few years ago?

Keith: I mean I would think so. I mean if you think about the two assets, I think in a combination could be very, very synergistic. I mean, you've got the more stable assets in Lilac in Chile and in Puerto Rico, they're all US-based. You have some volatility in the tourism base type stuff, but a combination of the two would create a very interesting sort of combined company, right? Just from a perspective.

And maybe the reason why at the time maybe TIGO thought that they were just sort of at the beginning of their transformation and of making this and they didn't see the full they wanted to have the full value reflected in what the company could get. I mean, maybe it's more of where the company was in its life cycle of, you know, I think they just at that time, they are probably just the Kennebec thing.

The overhang associated with that, the company was just starting to roll and starting to get it trying to get its markets to work. And you can see that, I mean, you can easily see that in like in some companies in the US. I held a company earlier this year, it started to get things working, their private equity came in and bought it out. I thought they were 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, I would say black swamp, it may be really was. No one could really predict that that was going to happen in advance that COVID didn't happen, who knows? I mean, TIGO could be up in the hundredths, but that's not what happened.

You got to deal with what's happening today. And so to a sort of 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, probably it would be a very interesting combination.

Andrew: 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 about Guatemala for another 15-20 minutes and there were seven other markets we didn't get to touch. Unfortunately, that's the issue. Some of these companies, you know, 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 there, I just want to make sure anything we didn't hit that you think we should have hit. Anything that we did hit, do you think we should hit a little bit harder or anything?

Keith: I mean, I think the main thing with TIGO is I think over time, it could be a multi-bagger. The real question is, I think they've got the management. When you look at the cards the management team has been played. They've done their best with the cards that have been played. I think part of the issue and 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. What's happening 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. Their demand for their product went up. Think about what happened in Latin America. The demand for the product went down because the people were so poor and the economies were just. So it's sort of two different cases from that perspective. But I think, a 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 onshoring 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 sorts of companies I've seen that has a very good mitigate to that. In other words, when I went back and looked at 2000, the currency depreciation on the weighted average of EBITDA basis is only 0.5% per year, which is very small[?].

Andrew: Did you worry about you're the turkey that it's zero point? Like the old... What was the company? I can't run out of the country, but you know, their currency was fixed. And then they unexpectedly turned into floating. The currency was down 15%, and you always have some FX broker who blows up on that, right? Say, you do were either the turkey [crosstalk].

Keith: It could be, but I look at the biggest when being 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, 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 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 is going to move to Guatemala and you're not going to get remittances anymore. In my mind, I think you got to take it. And so that I think is the biggest currency risk that you've got in these. You got the dollar eyes economies which are, but the only other big one would be Columbia.

Columbia was probably the one where they probably have the most compact. It's the biggest market. They've got the most competition, the most currency risk associated with it. But again, I think they're doing like what they did with this JV Guam with this Guam[?] 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 unique way to really lower risk in terms of weights 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 when we were 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 get it at ways to mitigate that. I think that's what they're doing in a number of these cases.

Andrew: Perfect. Well, I think we're going to have to wrap it up again here, but I did notice about five or ten minutes ago. You slept 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.

Keith: Oh, yeah, broadcasting is really, I mean, I would love to talk broadcast. I think there's some really interesting stuff going on there. I'd like to hear your views on that too.

Andrew: Yeah, you know, on the broadcast, there are some always kicking myself because next is it's, who's the CEO? Perry? Perry's the CEO there? I mean, everything I've heard about him. He's just a total killer and I've always looked at the stock and think the first time I looked at it was when it was 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 owned stations that retransmit, 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 to Paramount plus like it's just this really weird thing and then the second thing I've talked about this before is like Viacom keeps saying CBS because Viacom CBS owns it. Viacom threshold like 7 times EBITDA and next, our trades for like 9 times EBITDA. Now, next are is a lot cleaner. They're just going to buy back shares like crazy. But Next Star is a lot more kind of at risk in the terminal value sense than Viacom is.

Keith: 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 and even sucks presently[?]. Now people say that may be high in the sky, but when you think about what is the value of a free channel in terms of the overall, it's going to be tremendous. Another thing to think about is, to look at scripts. Okay, scripts as a company where their focus historically has been as they could be in any space, they can be podcast, they could be in newsprint media. They can be on TV. What have they decided to do? They got rid of their print. They sold their podcast. They're focusing on media and their folks, hence could 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 for example, Gray is selling for three times, free cash flow, Dexter selling for 5 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 are going to sell 15 to 20 times. And so all of a sudden it's a giant call option, right? I mean, again, you knew the sizing issues. But think about this, ATSC is going to be on every single TV in five years.

Andrew: You know, I don't know. I've been hearing Sinclair talking about it for years. I get it. But like like okay you get a free channel. It's going to be out but you need something to get people's attention, right? Like, for me when I turned the TV on the first thing I do is 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 it on Netflix or Disney Plus. Now, there are sports, but like Next Star can't afford Sports. Next Star gets sports because they license from CVS. If CBS going to put all their Sports. I don't know, I just I'm with your shitty. I'm [unintelligible].

Keith: I'm not saying they're going to be the next 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 saying, 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 Netflix or the 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.

Andrew: Yeah, but I wanted here because we're way off course. [crosstalk] I hear you like hey, there's this free channel. I'm going to put my stuff on it. But if your talent like do you really want to have your show on ATSC. Like, I always look back. There was this was the show that was on some AT&T. This was before they bought Warner Brothers, some AT&T's own channel was called Mr. Mercedes and it had like an Oscar winner as the star, you know, it had a great. They paid up for it. They put 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 know it's just a conversation for today, I just think of the stuff[?].

Keith: I guess, I'm more confident in the future that search is not going to allow one guy to sort of dominate and you're going to have this whole Chi and you're going to be able to choose. I guess I'm more confident. The technology is going to say, okay. Here are your 20 options. You can choose what you want as opposed to, as opposed to because if you're going back to okay, Netflix, then it's Netflix become the old broadcast TV networks? Or there's going to be more choice. You're going to be able to choose in the markets going to continue to fragment. In my mind is maybe more of the latter. And then if that's the case in these channels become something greater. Prior to this place[?], I think that right now these businesses are priced to go into terminal decline, right?

Andrew: Yeah. No, and look again 5 years ago the risk with Next Star was people were saying I would have said the same thing, I said, they're really cheap now they did have grown the opportunities that they don't have currently, in terms of they weren't fully penetrated. They could do acquisitions. But 5 years ago, I said these are really cheap, but I'm worried about the future. And guess what? They've cash flow their whole market cap in five years. They bought packets on the shares. They did some great opposition and the stocks update DAX[?].

Keith: 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 games, Multibagger 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 a bonus[?].

Andrew: Your counter is, Sinclair had a choice and they chose to go in RSN.

Keith: I agree with you 100% Sinclair. I'm not Sinclair of the broadcasters. Sinclair's way down my list. I'd never invested with them, but scripts are a different animal I think. And so, I mean, I understand your issues with Sinclair and I would never invest with them these now unless things change because they always seem to be a family-run business, that did all these little side deals that never made it up.

Andrew: I did a post on when they're, it was the tribune merger where all the documents came out with what they were saying to the FCC. And I just think that the 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 the street. But this will have to be a conversation for another podcast.

Keith: Okay.

Andrew: Keith Smith, it was great having you all. I'll include us[?], I'll 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.

Keith: All right. Thanks.

[END]