AMX America Movil SAB de CV

We believe Grupo Televisa S.A. (TV) is currently fairly valued, and thus, reaffirm our long-term Neutral recommendation. The stock price has soared 33.4% in the last year. The company reported mixed financial results for the second quarter of 2012. All the five business segments of Televisa generated considerable sales growth in the previous quarter.

We are quite optimistic regarding the regulatory approval of Televisa-Iusacell venture to enter into the Mexican wireless market. Televisa currently holds four free-to-air broadcast channels, the largest of the two satellite TV channels, and three cable TV units offering triple-play TV, voice and Internet services.

Mexican wireless market is highly monopolistic. Telcel, a unit of America Movil SAB (AMX), controls over 70% of the market, Telefonica SA (TEF) controls more than 22%, and Iusacell controls hardly 5% of market share. Undoubtedly, a foothold in the lucrative mobile market will make the company a highly integrated broadcasting and telecom operator in Mexico.

Pay-TV market in Mexico is vastly untapped. Several industry researchers estimated that the pay-TV penetration rate may reach 43%-44% by the end of 2012, reflecting a massive opportunity for future growth. Televisa’s cable & telecom service, which offers bundled triple-play video, data, and telephony services, may become a significant revenue generator.

At present, a considerable share of Televisa’s income comes from its U.S. operations, including the sale of content, website and cable television. Televisa is continuously generating higher royalties from its Univision venture in the U.S. The U.S. Hispanic TV market is highly lucrative and growing at a remarkable pace. In the previous quarter, royalty from Univision was $64.2 million, up 6.7% year over year. Management estimated that Univision will generate $245 million of royalty revenue in 2012.

 
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