Tuesday, March 15, 2016

48th AIM Student Update by Jack Kitzinger. Atlantic Tele-Network (ATNI) “A Wireless and Wireline Telecommunications Play in the Caribbean”

Atlantic Tele-Network (ATNI-US, $73.11): “A Small Cap Telecom Continuing to Diversify”
By: Jack Kitzinger, AIM student at Marquette University

Image result for atlantic tele-network

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


Atlantic Tele-Network (NASDAQ:ATNI) provides telecommunications services to rural markets, mainly in the U.S., Guyana, and Bermuda.

• ATNI provides both connectivity and roaming services as well as voice and data services in the Caribbean.

• Pressure continues on small-cap telecom companies in the U.S. because of the power of the big 4 (Verizon, AT&T, Sprint, and T-Mobile).

ATNI is attempting to acquire more interest in the Caribbean (Bermuda, Cayman Islands, and the U.S. Virgin Islands).

• ATNI continues to grow in the renewable energy market (namely solar).

Key points: Atlantic Tele-Network has been a strong preforming small-cap telecom over the past few years. They have found a niche market in providing services to rural areas and Caribbean islands. This is the most important part of being able to outperform in a market dominated by the four large national telecoms in the U.S. However, the power of these companies have been growing, putting downward pressure on the pricing these small cap companies can sell their products at.  Thus, in order to keep these contracts, ATNI negotiated reduced rates to have extended contracts with these companies. This led to a decreased revenue in fourth quarter of 2015 compared to 2014.

One way that ATNI has attempted to decrease the effect of these large customers is to diversify their business.  In late 2014 ATNI acquired Green Lake Capital LLC and transitioned it to Ahana Renewables, a renewable energy company who provides solar power to customers in Massachusetts, California, and New Jersey. On March 8th, bought Armstrong Energy Global, a developer and owner of Indian solar farms. India is a quickly growing economy that has a deficit in energy.

The other diversification is to continue to increase their presence in the Caribbean.  ATNI is waiting to close a deal to acquire a controlling interest in KeyTech Bermuda and Innovative companies with services in the U.S Virgin Islands. These will offset the issues of operating in the U.S. The diversification into these different markets will keep ATNI able to contend with competitors in a market with high capital requirements where scale greatly helps a company compete.

What has the stock done lately?
Since the beginning of the year, ATNI is down from its price of $78.23 to its current price of $73.11. This is a decrease in 6.5%. Much of that decrease came from missing EPS and Sales for Q4. The stock price went down 9.8% in two days. Since then, the stock has appreciated to its current $73.11 price.

Past Year Performance: ATNI was pitched on March 5, 2015 with a price target of $84.98. It closed on that date at $66.90.  Over the last year, the stock appreciated up to $83.48 (24.8%) in October, however it has depreciated back to $73.11 since after two quarters of missed EPS. Overall, this is an increase in 9.3%.

Source: FactSet

My Takeaway
In a difficult Telecom environment, ATNI is a stable, long-term investment. As a whole, the company has a strong niche environment in the Caribbean. Because of the difficulties that these small providers have in the U.S. environment, the best way to help lower risk is to diversify into other countries and businesses. ATNI has attempted to do both of these and looks to be in a good competitive environment to be outperform the rest of the small-cap telecommunication companies based in the U.S.

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