What is atn in business?

ATN International, Inc. (NASDAQ:ATNI), provider of communication infrastructures, delivered beneficial guidance for the full year 2023, and continues to deliver sales growth thanks to inorganic growth. ATN International also announced its intention to lower its leverage, which would most likely interest the investment community. I believe that new strategic alliances with regional partners and new markets in new regions will likely enhance future sales growth. I did identify risks from lack of innovation or competitors, but the stock price appears undervalued.

With operations in the United States, Bermuda, and the Caribbean, ATN International is a provider of communication infrastructures. Considering the new implementation of fiber connections, I believe that the company has an interesting business model.

Management intends to enter new markets that are not historically occupied by large-scale telecommunications companies, which may bring significant revenue generation in the next decade.

The company also has a large number of subsidiaries and affiliates that provide management, administration, development, and maintenance services through annual fee payments. This subsidiary is mainly Telecom, with national operations in the USA and internationally. In the international markets, management holds operations in the Caribbean market, where there are still undeveloped communication infrastructures, and some rural areas of the United States. ATN also has a subsidiary developing solar panel business in India although this project represents a minimal portion of its operations.

Among the company's services, ATN offers telecommunications services for companies as well as consumers, such as wireless connection networks and fiber broadband connections. It also offers network services for other companies that provide mobile services as well as roaming services.

ATN currently operates with three well-distinguished segments, namely Telecom US, Telecom Internacional, and the renewable energy segment. Telecom US is offering its services in the United States, mainly in Alaska and the western part of the country, covering all of its services. Telecom Internacional offers services in the Guyanas, the Virgin Islands, the Cayman Islands, and Bermuda. Finally, the renewable energy segment, which is a separate business segment, focuses on the distribution of electrical energy through solar panels in India.

The company's recent quarterly presentation appears beneficial. The company reported double digit mobile subscribers growth, close to 12.5%. ATN International also noted increased high speed subscribers, 15% increase, and more home subscribers.

Source: Investor Presentation

With the previous figures, the company also noted that the acquisition of Sacred Wind and strength in the international markets enhanced EBITDA growth, close to 148% Q/Q.

Source: Investor Presentation

Finally, the company included Adjusted EBITDA in the range of $183-$193 million and 2023 guidance with further growth coming in the second semester. I believe that the figures are close to what other analysts were expecting.

Source: Investor Presentation

Competition varies greatly depending on the type of service and the geographic region in question. ATN seeks to establish itself in markets where there is no development of communication infrastructures. Other similar companies have the same objectives, therefore competition is high for small markets. In short, ATN competes in Alaska with CGI and AT&T (T). These two competitors report significant resources that ATN International may not have. Other competitors are Lumen (LUMN), Zayo Networks, Frontier (FYBR), and Inyo Networks. In addition, at the national level, ATN depends on its consumers not developing their own communication infrastructures in the future.

As of December 31, 2022 the company reported cash and cash equivalents of $54.660 million, customer receivable of $5.803 million, and other current assets of $164.157 million, resulting in total current assets of close to $229.688 million.

The property, plant and equipment were worth $1.055 billion together with an operating lease right of use assets of $108 million, customer receivable of $43.706 million, and goodwill and other intangible assets of $185.794 million. In sum, total assets were equal to $1.707 billion. The asset/liability ratio stands at close to 2x, and current assets are almost as large as current liabilities. In my view, the balance sheet appears stable.

Source: Quarterly Press Release

With long term debt of $6.172 million, a current portion of customer receivable credit facility of $6.073 million, and other current liabilities of $198.143 million, total current liabilities are equal to $233.180 million.

Long term debt stands at $415.727 million in addition to the customer receivable credit facility of $39.275 million and a deferred income tax of $28.650 million. Lease liabilities are equal to $83.319 million. With other long term liabilities of $138.420 million, total liabilities stand at $938.571 million.

Source: Quarterly Press Release

The company's long term debt of $415.727 million does not seem that scary. The total amount of debt is not small, but ATN International reported EBITDA close to $100-$160 million in the past, and I expect EBITDA to grow with the passage of time. It means that long term debt may be equal to close to 2.4x EBITDA TTM, which does not seem that elevated.

Source: Ycharts

With that about the total amount of debt right now, it is worth noting that the company expects a net debt ratio close to 2x by 2024. I believe that lowering the ratio would most likely draw the attention of the investors. With the interest rates increasing at a high pace these days, I believe that there are many investors, who may not invest in indebted companies.

Source: Investor Presentation

Under my financial model, I assumed that ATN will successfully develop its business in regions where the market share is not commonly held by large companies, aiming at the development of its infrastructures by supporting local communities.

I also believe that the Fiber First project could represent a successful action channel seeking to shorten the digital divide in certain communities, allowing access to basic health and education needs, and providing fiber lines in new local communities.

I believe that the company has strong experience of managing and administering new lines in the US. Finally, I would expect strategic investments and acquisitions to enter new markets, which may enhance both sales growth and EBITDA margins.

My expectations include 2033 net income of $137.903 million, a depreciation close to $491.603 million, and an amortization of intangibles of $70.667 million. I also forecasted a provision for doubtful accounts of $10 million in addition to an amortization of debt discount of $10.143 million. I also included growing stock based compensation, so 2033 compensation would be $16.481 million.

Source: Malak Valuation Model

Besides, with a 2033 increase in customer receivable of $257.949 million, a change in prepaid income taxes of $152.803 million, and change in other operating assets of -$547.542 million, the CFO would be $348 million. Finally, with 2033 capex close to -$153.000 million, 2033 FCF would be $195.916 million.

Source: Malak Valuation Model

With a WACC of 12%, and a residual value of $3.13 billion from an EV/FCF ratio of 16x, the net present value would be $1.25 billion. Finally, the equity valuation would be close to $8.9 billion, and the fair price would be $57 per share.

Source: Malak Valuation Model

I believe that I am quite conservative in my model. I used an EV/FCF ratio close to 16x, which is significantly lower than what the company reported in the past. In 2020, ATN reported EV/FCF close to 60x FCF and even higher.

Source: Ycharts

Among the risks for ATN, I would include the fact that ATN relies on a low number of key suppliers. So, in my view, any disruption to supply or long-term trade agreements would force the company to search for new suppliers. If new suppliers charge more money than expected, the company's FCF margins could lower, which may damage the company's stock valuation.

I am also afraid of the volatility and transformation in the telecommunications markets and the new digital offerings that may offer even better services than possible with 5G connections. Let's note that ATN service is not at the forefront of developments, and is offered in areas and regions where there has not yet been a great transformation or businesses scaling up in the telecommunications market. In sum, lack of innovation may also be a problem for ATN.

I am concerned about potential cyberattacks or breaches of security, which may complicate relationships with clients. Sufficient detrimental public information about cyberattacks could destroy ATN's brand. As a result, the stock price could decline.

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