JP Morgan Cuts America Movil To Equivalent Of Sell, Cites Competition

In a report published Thursday, JP Morgan analyst Andre Baggio downgraded the rating on

from Neutral to Underweight, while establishing a price target of $17.5. Analyst Andre Baggio expects America Movil's Mexican margins to decline considerably in the future owing to competition from

. Mexico accounts for nearly 50 percent of the company's total EBIT and valuation. "We expect AT&T to be a tough competitor in Mexico, given its plan to cover almost the whole population with a 4G network, backed by a $3bn investment (more than twice capex intensity vs TEF Mx)," Baggio said, while adding that AT&T was also expected to benefit from the regulatory environment. "We expect the bulk of the impact from AT&T from 4Q16 onwards," Baggio stated. An analysis of the impact of competition and regulation on various subsidiaries of America Movil revealed that the ones in Peru, Ecuador and Colombia had witnessed a 7.5 percentage points reduction in their margins. "These countries, which account for 16% for AMX EBITDA, reduced their margins from 44% in 1H13 to 36.5% in 1H15 (excluding the MTR cut in Peru in 2Q15, we estimate that the decline was slightly lower but still sizeable at 7pp)," the report stated. America Movil's EBITDA growth in constant currency terms has been on a downward path for the last couple of quarters, Baggio pointed out. The consolidated EBITDA estimate for 2017 has been reduced by 3 percent while the EPDAS in US dollar terms has been reduced by 10 percent.