It’s difficult to overstate the impact that the cellular phone has had on African economies. The continent’s landline networks are sparse and costly to extend. So, without telephones, most business was negotiated face-to-face.
When the first wireless companies set up shop in the mid 1990s, they couldn’t expand quickly enough to meet the pent up demand. Fifteen years later, most African markets remain far from saturated. Cellular providers continue to grow their customer numbers month after month.
Unfortunately, these dynamic companies remain largely beyond American investors’ grasp. Most of the industry’s major players aren’t listed on the NYSE or Nasdaq. Kenya’s Safaricom is a subsidiary of Vodafone (Nasdaq: VOD) and West Africa’s Orange network is part of France Telecom (NYSE: FTE). But these African firms are dwarfed by their parent companies. Thus, their impressive growth has relatively little impact on the corporate bottom line.
Millicom (Nasdaq: MICC) is the purest African telecom play to be listed on a US exchange. The company derives more than 20% of its revenue from the continent. (The remainder comes from its Central and South American divisions.) It presently operates in Chad, the Democratic Republic of Congo, Ghana, Mauritius, Rwanda, Senegal, and Tanzania.
In most markets, MICC aims to build market share by undercutting its competitor’s rates. It’s been a successful strategy. The company launched its Rwandan operation just 10 months ago, but it has already captured a 15.3% segment of the country’s wireless market. In total, MICC’s African operations netted an additional 2.3 million customers in the first nine months of 2010.
Granted, this kind of growth won’t last forever. The company’s Central and South American subsidiaries have turned to value-added services to boost profits, because mobile penetration rates in the region are much higher. As the marginal benefit of extending its network of cellular towers shrinks, this will surely become MICC’s African strategy, too. It has already launched a phone-based money transfer service in Tanzania.
MICC currently trades at a shade above 20x normalized trailing earnings and a 2.5% dividend yield. That may be a tad pricey, but definitely worth a look for long-term investors who want to participate in the African wireless story. We’ll delve deeper into MICC’s financials in future posts.