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Thursday, July 26, 2007

Millicom falls, TradeRadar software says SELL

Millicom Cellular (MICC) has been a member of our model portfolio for some months now, and had rolled up a double digit gain. Regrettably, MICC gave the TradeRadar SELL signal as of the end of trading on 7/25. Its closing price that day was $82.64.

Trying to be a disciplined investor (any system is better than no system, or so they say) I sold at the opening on 7/26, the very next day, and obtained a meager price of only $79.17, basically breaking even on the investment.

From a closing price of $97 on Monday, 7/23, the stock had dropped almost 20 points in less than three trading days.

What happened?

On Tuesday, management reported worse-than-expected second-quarter earnings and spooked investors with talk of tough competition.

How bad were the earnings?

Earnings before interest, tax, depreciation and amortisation (EBITDA) totaled $263 million, up from $160 million a year earlier but below an average forecast of $269 million given in a Reuters survey of analysts. EBITDA gains of 65% are apparently not strong enough these days.

Pretax profit from continuing operations jumped to $134 million from $75
million a year earlier as the firm boosted its subscriber base by 84 percent to 18 million. Analysts had forecast $143 million pretax profit. The actual pretax profit gain of 79% was not good enough for the analysts who were expecting a 90% gain.

Revenue in the quarter rose to $613 million from $341 million a year earlier, an almost 80% gain. Net profit for Q2 rose to $102 million versus $34 million a year ago. Basic earnings per common share for Q2 came in at $1.01, nearly three times higher than the $0.34 logged in Q2 of 2006.

In spite of the tougher competition, management indicated there would be no impact to margins or growth at this time.

Outlook

Any way you look at it, Millicom put up tremendous numbers, just not quite as tremendous as had been expected. If TradeRadar had not said SELL, I would probably still be holding MICC and toughing out this latest drop. As it stands, I have cashed out for now but will be waiting for another opportunity to get on board this stock. The underlying global trends driving Millicom's growth are still in place and the company seems to be executing well. It is my belief that MICC is still a fine investment and I intend to keep an eye on it.

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