Case Studies

Meeting with Liberty LatAm’s Management

Liberty Latin America (Liberty LatAm) was the second biggest contributor in the first quarter after its stock price rose 33% during the period.  Like ABI, Liberty LatAm stock traded down in the fourth quarter of 2018, although this stock price decline seemed unrelated to fundamentals.  In fact, actual 2018 Liberty LatAm financial results were better than our expectations going into the year, and we continue to believe that the company’s cash flow will improve materially in 2019 as Puerto Rico largely has recovered from Hurricane Maria and most other markets are growing revenues and profits organically.

We recently spent a half-day with Liberty LatAm’s CEO, Balan Nair, and CFO, Chris Noyes.  They are optimistic about and doggedly working on the opportunity to create the first scale telecommunications player in Latin America.  The meaningful time we have spent visiting the company’s markets and talking with its competitors, peers, and suppliers has led us to cautiously share this optimism. We believe the company has and will have many places to deploy cash at internal rates of return higher than 20% for years to come.  We love situations where a company has a long runway of easy capital allocation decisions.  Furthermore, we believe that the management team now in place is the right group of people to drive this development and realize the company’s potential.

Several members of the executive team continue to buy shares in the open market.  That activity has been alongside our own, as we added to the Fund investment in Liberty LatAm during the first quarter.  This investment is not without risk.  For example, we continue to research 5G technology to evaluate the competitive threat it may represent to Liberty LatAm fixed broadband offerings.  We believe 5G is still a few years away from being commercially deployable in Latin America, and our work suggests that hybrid fiber-coaxial networks — due to a variety of technical challenges and cost considerations — will remain a superior method of transporting data to most homes in the region for the foreseeable future.  In total, Liberty LatAm offers one of the deepest discounts to intrinsic value within the Fund portfolio.