Masmovil MAS SM
October 28, 2019 - 5:15am EST by
2019 2020
Price: 21.64 EPS 1.5 1.7
Shares Out. (in M): 131 P/E 12 10
Market Cap (in $M): 2,500 P/FCF nm 13
Net Debt (in $M): 1 EBIT 348 382
TEV (in $M): 4 TEV/EBIT 13 11

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1. Summary of the investment case

  • MasMovil is a fast growing, well-run domestic challenger telecoms company in Spain
    • The company has a market cap of €2.2bn, share price of €20.0, $9m ADTV. Our ‘average in price’ is c. €18.0
    •  I forecast 2019e revenue of c. €1.8bn and EBITDA of c. €470m, marginally above company guidance
    • Over the next few years (to 2022e), I forecast EBITDA to double from 2018a
    • The company is relatively levered, at 3.9x ND/EBITDA, which raises risks to the share price
    • I believe these forecasts are conservative and there is scope for them to be upgraded if strong operating momentum continues through 2019e
    •  In a nutshell, you pay a multiple similar to most challenger telecoms in Europe (c. 8.5x 2020e EBITDA) but get c. 25% EBITDA CAGR to 2022e vs. low single digits for peers


  • MasMovil’s strategy is to offer a low-cost converged product, excl. TV (i.e. fast broadband and mobile, for customers that are fine with OTT TV access), which is an area that competitors haven’t targeted
    • Most competitors offer Pay TV and charge significantly more to customers as a result of needing to monetise their hugely expensive sport content investments, meaning they offer higher price points than MasMovil
    • There has been a large, uncontested ‘value’ market opportunity for MasMovil to attack. The company has now successfully positioning itself as the no-frills, good-value brand in Spain vs. flabby, expensive incumbents
    • This strategic positioning is quite ‘moaty’ for a telecoms company (which means it is a thinnish moat): peers are reluctant to compete at the lower price points due to cannibalisation risks to their higher ARPU customer bases. If high-end competitors do cannibalise their existing customers with lower ARPU offers, it materially hurts their profitability with a 100% drop through, which they all appear to want to strenuously avoid


  • MasMovil’s NPS and other service metrics are materially above competitors
    • This is a competitive advantage when combined with a low priced, high quality product – all my checks suggest that not only are they good value for money, but the quality of service is v. solid


  • In Spain, Telefonica is the incumbent, with c. 40% market share and high margins it wants to protect
    • Telefonica and the other main competitors (Orange and Vodafone) have spent a lot on TV football rights and other content and, to recoup those costs, charges a relatively high, premium ARPU to converged customers
    • This has created an opportunity for MasMovil to rapidly monopolise the ‘value’ market over the last five years
    • Telefonica has been loathe to offer lower prices to new customers as it would mean massively repricing its “back book” of existing customers (and materially impairing its EBITDA). This is the same for Orange and Vodafone, the no. 2 and no. 3 in the market, though Vodafone has tried many (erratic) promotions in the past


  • All of this has allowed MasMovil to growth significantly (from a small base): MasMovil has been growing service revenue at 20 to 25% p.a. for the last few years vs. peers at 0 to 5%
    • By and large, this growth opportunity looks like it still has a long runway to go when I cross-reference it vs. top-down market analysis, suggesting more than c. 150% upside in a blue sky scenario over the next four years
    • MasMovil has c. 5% market share in Spain: most other countries have a challenger brand with c. 15 to 20% of the market. Given MasMovil seems to be dominating each quarter vs. peers (one of the strong streaks of good operating momentum I have seen in a telecoms company), continuing momentum seems feasible
    • Blue sky thinking - If MasMovil could grow to 12 or 13% market share, the upside is over c. 200% vs. today’s share price. In this instance, EBITDA could increase by c. 150% from today’s level of c. €450m to at least c. €1.1bn. Valuing that at a 7x EBITDA multiple would lead to an EV of c. €8bn and equity value of c. €6bn, equating to c. €50 per share vs. c. €20 today. (This ignores any cash generated in the interim)
    • I say ‘by and large’ because Telefonica, Orange and Vodafone have launched some competing low-price brands as a “firewall” strategy vs. MasMovil – this is the biggest risk I have seen yet to the investment thesis
    • That said, all the market level share data suggests these brands are struggling to gain any traction
    • The brands have been launched in a somewhat ‘half arsed’ manner, with limited marketing support or online only brands (e.g. you can’t buy them in the Vodafone or Telefonica shops on the high street)
    • My checks have also indicated that the brands have been launched as a sort of “cover your ass” effort by the Spanish management teams (excuse my crudeness!) to placate their Group HQ leadership’s instructions, with very little real conviction supporting these launches


  • I really, really like the management team and company culture. We spent a day with many of the senior leaders and I was impressed with their energy and entrepreneurial “challenger” attitude
    • The management team seem very solid, with a good strategic understanding of how MasMovil will “win”
    • They seem well aligned, with the CEO owning c. €30m of stock
    • The CEO also founded the company and has a hustle and dynamism I like to see in corporate leaders. I met the Zegona CEO and he disparagingly mentioned how the Masmovil CEO founded Masmovil “without a pot to piss in” as an MBA student. 10 years later, he’s running a multi-billion company, having guided it through the Great Financial Crisis – remember how badly Spain was hit. This guy has drive and resilience. I like that
    • There was a round of insider buying after the recent results in February (six executives) at just below the current share price, which is good to see
    • I also think they are good strategists and there is a big opportunity for the Spanish market to consolidate in the coming years. I think this management team are well placed to win in that sort of ‘chess game’ (not every CEO is well suited for that dynamic; I think MasMovil’s CEO and leadership team are). I think there is a good chance (c. 1/3) the company gets bought by Orange or Vodafone in the next few years (the synergies would be enormous)


  • I think the share price is mispriced for non-fundamental reasons
    • The shares are down c. 25% from the peak in 1Q 2018, yet EBITDA estimates for 2020e steadily rose over that time, with all the decline coming from the multiple de-rating
    • This recent buying opportunity has opened up as the company has said it will invest more free cash flow in high return on capital investment fibre broadband opportunities (the company says 25% post-tax. My analysis agrees). Investors hate unexpected cash outflows (particularly in telecoms – capex often ends up higher than promised…!) so investors have taken a “prove it” stance to this (big) capital allocation decision. I somewhat understand that response, given industry precedents. I think it creates a great opportunity for us…
    • I find it fascinating that the company is delivering phenomenally re. customer growth numbers (basically taking the entire market level growth and stealing customers from every competitor, too) yet investors are sceptical
    • This is partly because the company is small (c. €2.2bn market cap.), is not covered by many large bulge bracket sell side analysts, and only listed on the main exchange in Spain in 2017, and is therefore a relatively unknown quantity for many investors (even European telecoms investors)


  • Good things have been happening: recent operating momentum is very strong
    • MasMovil has consistently beaten and raised guidance since it came to the main market in 2017
    • The company has grown materially faster in mobile and broadband than anyone expected. And it’s done it consistently. Quarter after quarter, for two years now…
    • In 1Q 2019e, the growth even accelerated: in 1Q, revenue grew +27% and EBITDA +40%...!
    • The data from the Spanish telecoms regulator suggest this momentum has continued into 2Q
    • Also, the company has executed a number of very smart transactions (e.g. it sold a 0.9m home FTTH network to Macquarie for c. 220m (c. €230 per home) and simultaneously bought access to 1.0m homes from Orange for c. €70m, or c. €70 per home – this is almost akin to creating money out of thin air – it’s not forecastable)
    • The company also did a smart deal to remove the overhang of a convertible bond (levering up and issuing a little bit of equity to clear the overhang, at a pretty compelling valuation level)
    • In general, I get a good “feel” (fluffy, I know) that they are very good executors


  • I think there should be good things ahead, too
    • If the operating momentum from 2Q continues, MasMovil will be tracking significantly above subscriber growth guidance, and therefore the company could upgrade full year revenue and profit guidance in the next few months
    • In the next couple of years, I also think that the company could be bid on by Vodafone or Orange
      • (Depending on who the new EU Commissioner is)
      • The synergies would be massive: potentially c. €3 to 4bn
      • That is c. 125 to 175% the current market cap. of the company
      • Simplistically splitting them 50/50 between target and acquirer would mean the potential for a 50% (or more) takeover premium for MasMovil shareholders
      • The strategic logic is also very sound: either potential acquirer would become the no. 1 in Spain and be the no. 1 in the lower, mid and upper segments of the market, materially benefiting from economies of scale


  • I think the fair value in two or three years is c. €30 to 38, or c. 70 to 110% upside
    • That translates into an annualised return over the next two to three years of c. 20 to 25% p.a.
    • DCF is the most helpful valuation methodology (given the high current one-off fibre growth capex), though I am wary of DCFs in general and so we cross-triangulate vs. FCF and EBITDA multiples
    • A one year forward 6% eFCF yield applied to c. €230m of eFCF in 2022e gives a fair value per share of c. €28 in 2021e, or c. 60% upside and 20% IRRs
    • A one year forward EBITDA multiple of 9x (justified by the growth potential), applied to c. €690m of EBITDA in 2022e gives a fair value per share of c. €31 in 2021e, or c. 70% upside and 25% IRRs
    • A one year forward Op. FCF multiple of 14x (which is think is a little low vs. peers), applied to c. €440m of Op. FCF in 2022e gives a fair value per share of c. €30 in 2021e, or, c. 70% upside and 20 to 25% IRRs
    • (M&A analysis suggests even more upside, as mentioned above)
    • So it looks “quite cheap” on multiples but not ludicrously so – this is largely because FCF “normalisation” to a more steady state dynamic doesn’t really happen until c. 2023 or so (hence the DCF showing more upside)
    • Given the business is fairly defensive (being a telecoms company with a ‘value’ customer proposition), this is a compelling potential return. That said, it’s worth pointing out though that financial leverage is currently high at 3.0x ND/EBITDA (and FCF generation is low due to one-off growth capex), which materially erodes these ‘defensive’ arguments. And I would flag that cash returns only kick-in in a few years, increasing forecasting risks


  • In summary:
    • Qualitative assessment: A very fast growing, well-run business with a great culture, good leaders, a differentiated product, and where most competitors are currently acting rationally re. pricing and competition. Risk revolve around high financial leverage and competitors (Euskaltel and Vodafone in particular) becoming more aggressive
    • Potential returns: They are sizeable, with c. 20% IRRs in our base case (and with take-out optionality on top)
    • Non-fundamental reasons for mispricing: investors wanting FCF today, even if the investment is NPV positive; small(ish) and under the radar company; only just entered the main Spanish index this month; patchy sell-side coverage; very fast-growing, and therefore not acting like a “normal” telecoms business
    • Good things have been happening: Operating momentum is strong, with huge subscriber gains in recent periods and upgrades to guidance (and therefore consensus estimates)
    • Good things potentially ahead: I think the strong operating momentum continues, with scope to raise guidance. In the mid-term, there is potential for a take-out by Vodafone or Orange
    • Market sentiment: The shares have been range bound, with sell side largely positive. Middling, I’d say – perhaps that changes with a few more quarters of strong operating performance



2. Categorising the investment case and key drivers

  • MasMovil is a systemic transformation – the future of the business looks different to past or present
    • The company is evolving from mobile only MVNO to genuine no. 4 challenger converged telecoms company – with very different economics, different customer proposition, different competitive advantage, etc.
    • There is clear evidence of a defendable niche vs. incumbents, all of whom are positioned as premium priced
    • The company is transforming for the better from a capital markets perspective, too: a new IR has joined, more sell-side analysts will likely take up coverage, the company has entered the IBEX 35 index recently, etc.


  • Evidence of latent optionality and obfuscation of underlying economics during this transformation
    • As the product mix shift evolves, there is a much higher ARPU base in FTTH vs. mobile only or vs. ADSL, which should lead to higher gross profit margins over time
    • The company is moving from “renting” to “owning” infrastructure. In mobile, from being an MVNO to owning a network from the acquisition of Yoigo; in fixed, from wholesaling ADSL and fibre to building its own network. This should materially lower operating costs, boosting EBITDA and FCF margins in the coming years 
    • Temporarily elevated capex investment should fade down in the next two years, boosting FCF. (Even if the investment is high ROIC, investors hate no FCF (particular when it surprises them). Even if it is NPV positive)


3. The key drivers I think will get us past the “80 / 20” in the investment case

  • I think there are six key drivers that will determine the success of the investment or invalidate it
    1. Competitive intensity, particularly around Vodafone and Euskaltel’s national roll-out
    2. Continued product differentiation vs. competitors, including value for money and service quality
    3. Short- and mid-term growth trends (which are partly baked into current trading multiples)
    4. How operating margins will expand as the company grows, given fixed cost operating leverage
    5. How FCF generation will look as the company’s one-off growth investment fades
    6. The likelihood of the company being bid on in a few years’ time


  • Firstly, competitive intensity: the first, last and most important questions for telecoms companies
    • How long will the larger competitors allow MasMovil to keep growing rapidly?
      • I’ve been positively surprised – the more I’ve dug into this dimension (through lots of primary research checks), the more I believe MasMovil is insulated
      • For the last few years, competition has been somewhat intense. Especially from Vodafone, with a lot of promotional activity (which hasn’t worked). So the past has not been “plain sailing”, though it could step up
    • How aggressively will low-price “firewall” brands (e.g. O2 from Telefonica) be launched? How big will marketing support (i.e. marketing investment) and pricing aggression (i.e. discounting) be?
      • All my checks here have suggested low-price competitor brands are not taking much share
      • Also, the checks show that they are not being aggressively pushed by Spanish management of these international telecoms companies (e.g. Vodafone and Orange)
      • It will be imperative to continually monitor this dynamic closely over the coming quarters in case these brands begin to gain traction
    • Vodafone has been the most irrational competitor in the last few years
      • Understanding its strategy from here is key as it’s important to focus on who the “problem child” is in any telecoms market. I am speaking to their Commercial Director next week
      • The company has cut prices aggressively in an attempt to take share in the last two years and has only succeeded in halving its EBITDA (!)
      • My checks show that the company is not getting any more aggressive, and perhaps even getting a little more ‘price rational’. I think the Vodafone Spain CEO is likely to be replaced – I will monitor it closely
    • Orange does not seem like a major risk. All my checks (with the company and independently) show that Orange is happy to keep wholesaling its fibre and mobile networks to MasMovil and Euskaltel and earn an okay return as an owner of infrastructure. Its pricing strategy in mobile continues to target the premium end of the market, not MasMovil’s value part of the market. In summary, Orange seems to be a very good competitor to have
    • Telefonica does not seem like a major risk, either. The company has launched O2 to compete in the lower end of the market, but does not actively market the brand and seems very content to focus on its very highly priced Fusion converged product (again, from multiple checks with the company and via other industry participants). It has the highest ARPU and largest subscriber base of all competitors, so is the least incentivised to be aggressive
    • Euskaltel is perhaps the biggest risk. It has an ambitious shareholder (Zegona, listed in the UK, I know them relatively well – I have met them regularly for market intelligence) and a good new CEO
      • They plan to expand out of the Basque region and go national in 2020e with the Virgin brand. They want to take c. 100k new subscribers over the next few years (NB: MasMovil grew c. 500k p.a. LTM)
      • They have explicitly told me they will not fight MasMovil head-to-head. That is a key positive
      • The risk is that they take some of the market-level growth that MasMovil would’ve taken otherwise
      • The secondary risk is that Vodafone, Orange and Telefonica step up their competitive intensity to ward off Euskaltel, indirectly harming MasMovil as the whole market gets more aggressive on pricing
      • Zegona have said they plan to only be a mild inconvenience to the larger competitors and not sufficiently antagonise them to warrant them retaliating aggressively. It’s a delicate balancing act that could go wrong
      • Euskaltel’s actions also risk hurting share price sentiment for MasMovil, as investors move towards a “prove it” stance in the face of Euskaltel’s national roll-out. High financial leverage at MasMovil amplifies these risks


  • Secondly, can MasMovil continue to sufficiently differentiate its product offering? Can MasMovil continue to offer better quality of service (NPS, etc.), no-frills (i.e. no football content, no TV product) and still grow at these rates? Will new low-price brand launches (e.g. O2) impact this differentiation?
    • MasMovil continues to take market share from every single competitor, with most losing share. Especially Vodafone. Orange is reporting some growth, but that is largely Wholesale customers (i.e. MasMovil!)
    • The same market share gains for MasMovil are happening in Mobile, where porting data (moving between providers) is published monthly by the government
    • MasMovil is also basically taking all the broader new entrants into the Spanish broadband market (c. 400k p.a.). New market growth is substantial in Spain as broadband penetration is surprisingly low at c. 65%)
    • Competitors seem to be moving up-market with their pricing (ARPU price rises across the board) and the low-priced competitor brand launches don’t appear to be well supported or taking much share. I’ve been careful to actively monitor this trend. It is hard to compare apples-to-apples, so I triangulate from multiple sources
    • Vodafone dropped football from its offering in the last year; it led to huge subscriber losses. The lesson for them, and for Orange and Telefonica (all with expensive football content), is to be careful messing around with tried and tested product strategies – that bodes well for the status quo to continue, which is good for MasMovil
    • I will ask IR about NPS data on a quarterly or monthly basis, as a proxy for service quality trends


  • Thirdly, short- mid and long-term growth trends (in general and vs. consensus). How long can the growth runway run before law of large numbers catches up / competitors fight back hard? Really?
    • This is really important, as the EBITDA trading multiple is pricing in slightly better than peer level growth (trading at c. 9x EBITDA vs. peers on c. 8x). Any disappointment and it will hurt, given the financial leverage
    • Analysis of comparable ‘challenger’ brands in other European markets suggests MasMovil can at least double its share and revenue base before starting to really butt up against the law of large numbers (see appendix A)
    • That suggests a fair share price of c. €50 per share vs. c. €20 today
      • Getting to c. €3.2bn in revenue (double the current €1.5bn level) at a 33% EBITDA margin (which is my mid-term estimate, and relatively conservative vs. many peers) leads to c. €1.1bn in EBITDA
      • Valuing that at a 7x EBITDA multiple would lead to an EV of c. €8bn and equity value of c. €6bn
      • That equates to c. €50 per share vs. c. €20 today
      • That is a “blue sky” outcome, but it is certainly achievable given the company’s very good execution
    • Looking at the near-term growth rates (rather than top-down, longer-term potential market-level comparable numbers from other markets) also suggests that the near-term growth engine is continuing to power ahead
      • MasMovil added 140k broadband customers in 1Q 2019 vs. 4Q 2018. The three periods before that were +110k, +101k and +133k for 1Q, 2Q and 3Q 2018, respectively
      • My checks suggest that 3Q 2019 growth is likely to be at a similar run-rate i.e. c. +100k
      • That means the company has added c. +280k broadband subscribers in the first half of the year alone
      • The sell-side models I’ve analysed have c. +390k for the full year, implying the company only needs to deliver c. +55k for each of 3Q and 4Q to meet consensus expectations
      • Given strong operating momentum, consensus expectations seem likely to be beaten. Perhaps materially…
    • Why I think there is scope for guidance to be upgraded is that the company guidance of c. €450m EBITDA and c. €1,445m service revenue seems to tally with only c. +250 to 300k net broadband adds
      • But that looks likely to be beaten by 3Q…!
      • Even with “only” c. +435k net adds (which I have in our model), service revenue could be c. €1,520m and EBITDA c. €470m, i.e. materially above guidance
      • And I don’t think +435k is particularly aggressive, given 1H growth might be c. +280k
    • The reason this near-term growth is so important is that investors extrapolate the near-term into the medium term in a fairly direct manner (but with a fade). So any growth slowdown, particularly a large slowdown, will raise question marks (potential large ones) about the mid- to long-term market share


  • Fourthly, how rapidly operating costs fall away as % of sales as the company (i) grows the top line, and (ii) moves customers on-net (both in mobile and in fibre), reducing wholesale costs (mix shift)
    • The company has given me very granular information on cost items
    • Most telecoms investors don’t model out cost items (they typically model margins) but given MasMovil’s growth profile, it’s important to model the costs directly and let the margins be the output
    • I’ve checked my forecasting with the company on multiple occasions and they say it tallies with their internal modelling of how the cost items will move. As a general rule, modelling costs is fairly simple vs. modelling customer gross adds and ARPU trends, as those two items rely on exogenous factors (e.g. competitor actions)
    • I get to c. 32% EBITDA margins by 2022e. My estimates are in line with sell-side analysts (including “The Bear” at Kepler) between 31 and 33%. So I feel comfortable I’m not being too optimistic with my cost assumptions
    • For what it’s worth, the company believes margins can be even higher (c. 35%) but they want to keep guidance reigned in – if you believe them (I clearly do), that is positive on multiple levels (1. upside and 2. conservatism)


  • Fifthly, how will FCF generation in the mid-term look - how much capex investment (and other cash cost) is honestly needed for that growth
    • The recent upgrade to EBITDA guidance at 4Q 2018 came with a capex increase, too, which spooked investors
    • To be fair to them, we’ve seen this movie before. This movie being a challenger telco that is “semi-capital light” spending a boat-load more on capex than it promised, and thereby obliterating everyone’s juicy FCF forecasts
      • At least in MasMovil’s case it made a very clear, detailed argument for 25% ROIC on that capex
      • But, to be fair to sceptical investors… MasMovil management has come from an asset-lite background. They are used to running the business with a lean crew
      • There is a real risk that this leanness either leads to an execution issue or that costs will bloat as their forecasting is too ambitious. I need to stay close to them and poke hard, regularly
    • To cut a long story short, I have spent a LOT of time modelling out the capex line-by-line to get a good deal of granularity and conviction on it all. I’ve then cross-checked those aggregate levels (c. 13% of revenue) with peers
    • Even the Bears argues that 13% is a perfectly fine level for a challenger telecoms company with MasMovil’s profile, so I feel comfortable from multiple perspectives that my modelling is probably fine
    • I’ve made sure to put a decent buffer in many of the cash flow line items (e.g. IR: “Your €10m NWC drag p.a. is very conservative, as we are normally NWC negative as a business”, etc., etc.)
    • I have also painstakingly double checked all my modelling vs. multiple sell-side models, including “The Bear” at Kepler, and specifically made sure to laboriously check each item with IR (incl. IFRS 16 impacts)
    • Anyway: that gets me to c. €205m of eFCF in 2020e, c. €235m in 2022e, and c. €305m in 2024e. Remember the current market cap. is c. €2.2bn. Clearly those are longer-term numbers with large error bands around them
    • What is important to note is that eFCF is still growing at c. +15% p.a. during that 2020e to 2024e period…!
    • Given the de-leveraging that occurs, I model SBBs to keep leverage at 2.5x ND/EBITDA. That means eFCF per share grows at +20 to 22% p.a. during that period…! (NB: This is why I find it hard to validate many of the bearish arguments from Kepler re. mid-term valuation metrics being too high)


  • Sixthly, can we find any evidence that an existing competitor or financial sponsor might bid for the company – when the EC commissioner changes in 2H this might be more feasible for a competitor.
  • I think the PE take out angle is limited, given Providence owns a stake and used to fully own the company
    • Providence would have shopped it around, pre-IPO
    • And, as the Zegona CEO, John Hahn at Providence is the best telecom investor in Europe. “If he is selling, be careful”. It’s a fair point, though the Zegona CEO was clearly trying to scaremonger (he is a competitor with a nice way with words, albeit he is very intelligent and experienced in telecoms investing)
  • I think the financial and strategic logic for Orange or Vodafone bidding is substantial
    • MasMovil spends c. €300m with Orange at the moment on wholesaling fibre and mobile access. If Vodafone bought Orange, that c. €300m could be switched off and c. €3.0bn in synergies generated. There is potentially another c. €1bn in opex and capex synergies, too, for an acquirer
    • If Orange thought Vodafone was likely to buy MasMovil, it would be incentivised to buy it to protect itself from forfeit profits (this sounds like a stretched argument, I know – I am a bit sceptical, but it does happen)
    • If synergies were c. €4.0bn, that could be split 50/50 with the target (very simplistic analysis, but I used to work in telecoms M&A, so it is something I know a little bit about). That’s c. €2.0bn to MasMovil vs. a current market cap. of c. €2.2bn. It’s hard to appreciate it, but it means that even offering a c. 75% premium could generate meaningful returns (c. €2.0bn in synergies) for a strategic acquirer
    • This course of action hinges on the new EC Commissioner being more open to in-market consolidation. With 5G investment spend likely to be substantial, and the EU keen to roll it out ASAP, telecoms companies are finally in a good place to argue for some pro-telecoms regulatory support. Also, Google and Facebook et al have replaced the telecoms companies as the corporate boogeymen for politicians in recent years
    • It also hinges on Euskaltel not being perceived as a more attractive bid target. Though perhaps both companies get bought, UK style. Euskaltel doesn’t have a mobile offering, so would be more feasible from a regulatory perspective (regulators don’t dislike mobile-to-fixed mergers as much as mobile-to-mobile)
    • Having now met the MasMovil CEO (and liked him), I think MasMovil is one of the best positioned leadership teams in Spain to engineer this sort of deal. The CEO is very close to Orange and Vodafone, due to JVs on fibre infrastructure. He has Deputy CEOs who focus on operations, letting the CEO focus on strategic partnerships, aka horse-trading, deal-making and relationship building
    • To summarise here – the evidence suggests a compelling potential “blockbuster” exit for the investment. It’s speculative and hard to put a probability on – maybe a c. 15 to 25% likelihood? That’s a much higher probability than for most investments, and a much larger upside than most take-outs; very nice optionality
    • It’s worth reiterating though that this ‘end game’ is the icing on the cake, not the cake – it’s optionality


  • So where might it go wrong?
    • Growth being less strong than I hope, which will have a negative compounding effect on the share price due to 1. It being a core part of the investment thesis for many investors, 2. High financial leverage. This will almost certainly come from competition upping their game (either via more aggressive pricing or by better service)
    • ARPU declines, as argued by the Bears
    • Execution mis-steps on opex and capex overruns. I haven’t seen any evidence from MasMovil to suggest this is likely, but it’s a common issue with fast-growing businesses. Particularly ones put together via M&A. And ones with a culture of operating very leanly
    • High leverage magnifies these risks. The high current one-off growth capex investment and the high financial leverage combine to amplify the share price’s fragility to risks in the next year or two
    • On balance, I think these risks are more than offset by the company’s strong operating momentum, business quality, good leadership and discount to intrinsic value