This company is in the midst of selling off assets, but retains two very valuable ones, which the market is currently discounting.
NII Holdings, Inc. (NIHD)
From The Turnaround Letter
NII, formerly known as Nextel International, was originally formed in 1995 to hold certain international operations for Nextel Communications, a cell phone operator best known for its “push to talk” technology. NII became independent when Nextel Communications was acquired by Sprint in 2005. Over the following years, NII sold off many of its individual country units, leaving it by 2014 principally with operations in Mexico, Argentina and Brazil.
As its technology was overtaken by “smart-phone” technology, NII saw its business decline in many of its markets. By 2014 the company was unable to service its heavy debt load, and it filed for Chapter 11 in September. It emerged from Chapter 11 on June 26, 2015, exchanging much of its debt for new stock. The new stock initially traded around 16, but during the market volatility in the late summer and early autumn, it fell sharply.
NII’s stock has a number of things going against it right now: Its business is declining; its principal remaining business unit is in Brazil, a country with problems that spook many investors; many of its current stockholders were originally bondholders and probably don’t want to own the stock; and with the recent decline in the stock it is likely subject to year-end tax selling.
With all that going against the stock, why do we like it? Principally because NII owns some very valuable assets that are worth a lot more than the stock is currently trading for. The company has sold its Mexican business, and has reached an agreement to sell its Argentine unit, leaving it with just its business in Brazil.
This Brazilian business has two assets that its competitors would love to buy: its radio spectrum (which carries the cell phone signals) and its customers. As more and more people use cell phones, spectrum is in short supply around the globe, and NII controls a valuable chunk of the highest quality spectrum. Moreover, the company has more than 4 million customers in Brazil which competitors are probably salivating over. And a competitor could acquire those customers much more cheaply by buying the whole company rather than by luring them away through marketing.
There are already rumors that NII is working on selling its Brazilian business. Using the sale metrics for the Mexican and Argentine units as benchmarks (and the Brazilian business should be more valuable than either of those) suggests that the stock could be worth two to three times its current trading level.
The stock obviously has risks—otherwise it wouldn’t be trading down where it is—but we believe the return potential considerably outweighs those risks. We recommend buying NII Holdings stock up to 11.
George Putnam III, The Turnaround Letter, www.turnaroundletter.com, 617-573-9550, November 2015