Earnings Report /
Mexico

Megacable Holdings: MEGA, Quarterly Report 1Q21: Cable kicked-off the year on strong foot

  • Mega's reported solid RGUs additions in the Mass market and efficiencies in expenses, boosting Cable's profitability

  • Despite higher investments for the migration of its network into GPON, capital structure remains solid at 0.2x ND/EBITDA

  • Valuation remains very attractive at 6.0x 2021E (-30% vs. peers median), while GPON migration could drive a re-rating

Valentin III Mendoza Balderas
Valentin III Mendoza Balderas

Senior Equity Research Analyst, Consumer & Telecoms

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Juan Barbier
Juan Barbier

Equity Research Analyst

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Banorte
5 May 2021
Published byBanorte
  • Megacable's report came in line with our expectations, with a solid addition of RGUs in the Mass market (204k) and efficiencies in expenses boosting Cable's profitability

  • Despite higher investments for the migration of its network into GPON (Capex: +50.4% y/y), capital structure remains extremely solid at 0.2x ND/EBITDA, which is quite positive in our view

The Mass Market continued being the main growth engine. Megacable results confirmed that dynamism in net addition continues, this time amounting 204k total subscribers, with growth across the board of services (Internet: +14.1%; Telephony: +24.7%; Video: +6.3%). In the same vein, unique subscribers increased 3.9%. However, the accelerated growth in RGUs, bundling of services and the migration of clients towards more affordable packages, continued to put pressure on the consolidated ARPU (-3.5% y/y). That said, revenues in the Mass market increased 7.7% y/y, while Corporate Telecom finally start to recover (+ 2.3% y/y), showing a strong demand for connectivity services at MetroCarrier. Thus, consolidated revenues grew 7.8% y/y to MXN 5.952 bllion. Meanwhile, expense efficiencies at Cable operations, drove a 40bps EBITDA margin expansion towards 50.5%. Consequently, EBITDA increased 8.5% y/y to MXN 3.003 billion. Finally, net income dropped 16.5% y/y to MXN 1.103 billion, impacted by a 2.0x higher interest payment and significantly lower FX gains. Valuation remains very attractive. Mega trades at 6.0x FV/EBITDA 2021E (-30% against the median of cable operators globally), while the migration into GPON could drive a re-rating on the stock, in the sense that it could transform itself into a FTTH busines, even with chances of offering infrastructure services for wholesale customers. Both businesses are paid at double digit multiples.