Dan - here's the first Barron's article. Interesting, all right, but no mention of MRVC....
Money Manager Favors Far-Off Telecom Stocks
Peter C. Du Bois
Emerging Markets | Global Stock Markets
he outlook for selected non-U.S. growth stocks in 1997 is very promising.
Reason: With interest rates about as low as they'll get in this cycle, earnings will
become the key determinant of stock-price movement.
So says Henry de Vismes, New York-based head of international investments for
Citibank Global Asset Management. He's a growth-stock picker who prefers to
keep only 30-35 names in his portfolios. Thus, two or three big winners can have a
dramatic impact on his performance.
Without disclosing the amount of money under his supervision, de Vismes says that,
in the first nine months of 1996, his holdings cumulatively are up 12.4% after
deducting management fees, against only 4.65% for the benchmark EAFE index
that all international fund managers try to beat. ``Picking growth stocks this year has
been rewarding,'' he says, drolly. His goal is to rack up another double-digit gain in
1997.
One reason for de Vismes's outperformance during January-September of 1996
was his decision not to overweight companies headquartered in Asia ex-Japan.
Several bourses in this region have been notable laggards in dollar terms this year.
By geographical region, he's invested 51% in Europe, 43% in Asia (including
Japan) and 6% in Latin America. By sector, he's 52% in capital goods, 37% in
consumer plays and 11% in financials.
Absent entirely are basic industries, utilities, energy, transportation, autos and
household durables.
Looking ahead, de Vismes sees better prospects outside the U.S. next year than in
it.
Citibank sees earnings per share of U.S. companies rising 9%-10% in 1997. In a
recent IBES survey of consensus estimates for 47 non-U.S. marts, 41 are seen
rising in double digits, led by Turkey (up 70%), Brazil (up 48%), Japan (up 38%),
Slovakia (up 37%) and Hungary (up 36%). Estimated to be the six
underperforming, single-digit gainers are Chile, Ireland, Israel, Mexico, Norway
and Taiwan.
De Vismes argues that he's currently not paying a premium for visibility of earnings
growth. Here's why: In his portfolio, the weighted average of forecast increases in
earnings per share is 29.7% in 1996 and 23.2% in 1997, while the price/earnings
ratio is 22.6 and 18, respectively. In contrast, he sees overall growth in earnings
per share outside the U.S. at 24% this year and 11.9% next year, with P/Es of
29.2 and 26.8, respectively.
Even a stock-picker like de Vismes keeps an eye on the global macroeconomic
climate, which he deems ``benign.'' To date in 1996, he insists, the U.S. stock
market has received very little help from interest rates. Specifically, popular U.S.
equity indexes have been driven to peaks by higher earnings. This trend, he adds,
``is exactly what you'll see outside the U.S. in 1997. That's why we're positive that
foreign stock markets will do very well relative to the U.S. next year.''
Turning to individual stocks, de Vismes notes that, until recently, many Asia-Pacific
equities statistically were too expensive. Following a ``major shakeout'' in the
Philippines, he's now keen on Pilipino Telephone, known as Piltel, which is a pure
cellular play and is a subsidiary of giant Philippine Long Distance Telephone.
From 44 pesos a share about three months ago, Piltel fell to 30. At this level, it's
selling at 17 times 1997 earnings, which are expected to accelerate to plus 45%
from plus 30% this year, he says.
De Vismes actually sees Piltel's earnings for the first nine months of 1996 rising
55%. Allowing for a ``bit of slippage'' in the fourth quarter, he says this could be
too conservative. ``In fact, we may have to raise our '96 estimate.''
Another telecom pick, this one in Latin America, is Telefonica del Peru, which
trades in ADR form on the New York Stock Exchange. De Vismes notes that TDP
enjoys the best operating margins of any Latin phone company, the highest return
on equity and is increasing its number of lines in service by 35% this year. By his
analysis, TDP's EBITDA (earnings before interest, taxes, depreciation and
amortization) is 60%-65% of sales, versus 20%-25% for regional rivals.
TDP was privatized in June, listed on the Big Board, and basically ``has done
nothing over the past three or four months. Short-term investors are out of the
stock, and long-term investors now will be rewarded,'' he says. TDP traded Friday
at $22.50 a share. He sees it earning $1.55 per ADR this year and $1.85-$1.90 in
1997.
Turning to another favorite, a very controversial telecom play, de Vismes laughs:
``You'll be amused by this one.'' PLD Telekom, previously named Petersburg
Long Distance, operates in Russia, is listed on the Nasdaq electronic
over-the-counter market in the U.S. and keeps its books in dollars per standard
U.S. accounting principles. The stock traded Friday at $7.125 a share.
Telekom began as a network voice and data operator in St. Petersburg, then
expanded via satellite into Russia's domestic long-distance phone market. It also
has the exclusive cellular license for Kazakhstan, an oil-producing republic which,
de Vismes notes, ``is the size of Europe, with 17 million people and no fixed-wire
phone service. Revenue per subscriber there is staggeringly high, about
$13,000-$14,000 per month.''
The original management of PLD Telekom was long on hype and never delivered
any earnings. New management tried to dampen expectations. De Vismes sees the
company ``posting a small loss or maybe breaking even'' in 1996 on a 150% jump
in revenues to $73 million. In 1997, he believes it can earn 30 cents a share on a
133% increase in revenues to $170 million. Come 1998, in his view, really big
gains in profits could begin. He sees 45-50 cents a share in 1998 on revenues of
$240 million. Fueling reported earnings, he says, will be a sharp drop in
depreciation and amortization charges related to switches, base stations and the
cellular license.
What if Russian President Boris Yeltsin suddenly dies or is ousted? we asked. ``It
would have very little impact on Telekom. The need for communications between
cities and regions is enormous. Anybody who is willing to help provide this service
is welcome, and is allowed to make a profit.''
Briefly, de Vismes also likes Misys, a U.K. supplier of software packages for
transaction processing by U.K. insurers and international banks; Amway Japan,
which sells cosmetics, cookware, water filters, vitamins and other household items
only to homes in Japan through one million distributors; and Powerscreen, a
Northern Ireland maker of screening and crushing equipment for the construction
industry.
verseas stock markets generally rose last week, with Europe (13 up, five
off) outperforming Asia-Pacific (nine up, six off). Closing at all-time or 1996 highs
Friday were popular equity indexes in Helsinki, Hong Kong, London, Paris and
Madrid.
In Tokyo, the 225-share Nikkei index of Japanese stocks rose 3.07% last week,
closing Friday at 21,612.30 ahead of yesterday's general election. Under new
voting rules, 300 of 500 seats in the Diet (parliament) were decided in
winner-take-all, single-candidate races; the rest were allotted the old way, by
proportional representation. Despite electoral reform, the Liberal Democratic
Party, which was the ruling party for 38 years before it was forced into a coalition
with reformers in 1993, was tipped in some quarters to win outright. In this event,
the pace of badly needed structural reform in Japan just might decelerate.
Pre-1993, LDP politicians generally danced to tunes picked by an all-powerful
bureaucracy. In this era, it's widely agreed, the Ministry of Finance wielded far too
much power and free markets suffered. An LDP win probably would muzzle calls
to break up the MOF. In this event, foreigners who had been betting on radical
reform just might abandon Tokyo stocks. |
