UPDATE 2-Millicom Q3 tops forecasts, but customer growth soft

* Core profit $484 million, beats forecasts

* Repeats EBITDA margin forecast for 2010

* Sees better free cashflow margin

* Shares down 1.0 percent

(Adds comments by CEO, CFO, analyst; updates share price)

By Simon Johnson

STOCKHOLM, Oct 19 (BestGrowthStock) – Emerging market telecoms group
Millicom (MICC.O: ) (MICsdb.ST: ) narrowly beat forecasts for third
quarter core profit thanks to a focus on higher-paying clients
which disappointed investors.

Millicom shares were down 1.0 perent at 1549 GMT,
underperforming the European index (.SXKP: ), despite a 16-percent
rise in earnings.

“It was a little mixed,” said Stefan Pettersson, analyst at
Nordea. He said customer intake at 714,000 during the third
quarter, was weak, particularly in Central America.

The company, which operates in Latin America and Africa,
said the lower-than-expected customer growth was due to its
focus on higher-paying 3G subscribers using mobile broadband and
other services rather than simply making voice calls.

“We had a low net add number in Q3 2010 while our top-line
revenue growth has been the highest in … 21 months,” Chief
Financial Officer Francois-Xavier Roger said.

“So we don’t see any correlation any more between the new
customer number and revenue growth.”

Roger also held out the prospect of returning more cash to
shareholders after a planned share buyback and bond redemption
are completed later this year.

“After that we will still be left with excess cash above the
amount of liquidity we need … so we will need to review with
the board the way to move forward,” Roger said.

He said the company was under no pressure to make
acquisitions and that prices were high.

Anders Wiklund, analyst at Evli Bank, said the focus on 3G
customers rather than lower-revenue 2G customers was the right
one in the longer term.

“I think it was a pretty okay report,” he said. “As expected
it was growth in South America and value-added services which
were the drivers.”

BETTER ECONOMY

Telecoms firms cut costs during the downturn and, with the
global economic outlook brightening, revenues have now started
to recover, if slowly.

Millicom’s revenues were flat year-on-year in Central
America, but it saw strong growth in South America and Africa.

Average revenue per user (ARPU) continued to fall for the
group as lower-ARPU regions are growing faster than more mature
markets. But the slide slowed and ARPU in South America grew for
the second successive quarter.

Profitability remained high due to increasing scale and cost
control, with the EBITDA margin during the quarter at 47.5
percent.

The company repeated its forecast for an EBITDA margin of
around 47 percent this year, but said that if it saw
opportunities to invest to boost top-line growth it would.

This would reduce the EBITDA margins slightly.

“Globally, for Millicom we said that we would target the
mid-40s level mid-term,” Roger said.

Earnings before interest, tax, depreciation and amortisation
(EBITDA) for the third quarter were $484 million versus a mean
forecast of $465 million and $418 million a year-ago.

Sales topped just $1 billion against expectations of $993
million and $904 million in the year-ago period.

Millicom said it expected its operating free cash flow
margin this year to be around 20 percent, an increase from the
previous forecast for the high teens.

(Reporting by Helena Soderpalm and Sven Nordenstam; Editing
by David Cowell)

UPDATE 2-Millicom Q3 tops forecasts, but customer growth soft