Mexican Telecom giant, America Movil S.A.B (AMX - Analyst Report) 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 installments.
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. (TV - Analyst Report). 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 Telefonica S.A. (TEF - Analyst Report) 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 (MBT - Snapshot Report), with Zacks Rank #1 (Strong Buy) is another stock in this sector, which we believe is worth considering.