Millicom’s Mixed Q1 Results: Navigating Currency Headwinds to Capture Growth Opportunities

Millicom International Cellular S.A. (TIGO), a leading telecom player in Latin America, delivered a quarter marked by uneven performance in its Q1 2025 earnings. While customer growth and operational efficiency gains shone brightly, currency devaluation and macroeconomic headwinds clouded its top-line results. The transcript reveals a company balancing strategic progress against regional challenges, offering investors a nuanced story of resilience and opportunity.

Customer Growth: A Solid Foundation

Millicom’s customer metrics were a standout positive. Postpaid net additions surged to 262,000, a 50,000 increase from Q1 2024, reflecting strong demand for its mobile services. The fixed broadband segment also turned a corner, adding 62,000 customers after losing 13,000 in the prior year. This rebound, driven by network quality investments and localized marketing, has positioned the fixed business to achieve positive revenue growth by Q2 2025, per management. In Panama, a standout market, adjusted EBITDA margins hit 51.2%, a record for the company, underscoring operational excellence.

Revenue Challenges: Currency and Competitiveness

Despite these gains, service revenue fell 6.6% year-on-year to $1.29 billion, with currency headwinds accounting for nearly half of the decline. The 40% devaluation of the Boliviano in Bolivia alone contributed significantly, while Nicaragua and Costa Rica also saw service revenue contractions. Management acknowledged that B2B services—a critical growth area—lagged due to the absence of large-scale projects, which had artificially inflated prior results. Competitively, America Movil’s fixed-line investments in Central America pose a threat, though Millicom’s localized strategies have kept market share stable.

Financial Fortitude and Strategic Priorities

The company’s financial discipline is evident. Operating cash flow (OCF) margin rose to 36.7%, a 2 percentage point improvement from 2024, thanks to cost-cutting from its restructuring program. Equity-free cash flow hit $135 million, a $172 million year-on-year jump, despite Q1 typically being the weakest quarter. This cash generation supported a proposed $3 per share dividend, signaling confidence in sustained liquidity.

Debt management remains a focus. Net debt rose $101 million in Q1, driven by dividends and buybacks, but the leverage ratio remains within targets at 2.47x. Management aims to extend debt maturities beyond five years and reduce USD-denominated debt, mitigating currency risks.

Risks and Considerations

• Currency Volatility: Exposure to currencies like the Boliviano and Colombian peso remains a key risk.
• Regulatory Complexity: Tax regimes across Latin America add operational challenges, with the effective tax rate expected to inch up to 25-26%.
• Market-Specific Weakness: Declines in Nicaragua and Costa Rica highlight reliance on regional stability.

GuruFocus flagged 5 warning signs, though specifics were not detailed, likely tied to debt or margin pressures.

Conclusion: Positioning for Recovery

Millicom’s Q1 results paint a company navigating a challenging environment with strategic clarity. While currency devaluation and project lulls pressured revenue, its customer growth, margin improvements, and robust cash flow suggest underlying strength. The fixed business turnaround and Panama’s performance indicate that operational investments are paying off. With a dividend proposal and a focus on debt maturity extension, Millicom is prioritizing shareholder returns and resilience.

Investors should weigh the risks of currency volatility and regional instability against Millicom’s improving fundamentals. The company’s 2% organic mobile service revenue growth (excluding currency impacts) and $135 million equity-free cash flow in a typically weak quarter signal a path to recovery. If management can sustain customer momentum and mitigate macro headwinds, Millicom’s target leverage range of 2.0x-2.5x and plans for strategic M&A could unlock further value.

The road ahead is uneven, but the data suggests Millicom is positioned to capitalize on Latin America’s digital growth, making it a compelling, if cautious, bet for telecom investors.