Comments on the recent Telscape Q2 report.
Telscape management showed good hustle in Q2, pushing revenues aggressively while limiting the fallout from the bankruptcy of a key customer/service provider. We had estimated that the top line at Telscape would be reduced from $33,450,000 to $28,450,000. Actual revenue at $32,378,000 showed that Telscape had limited the revenue loss from this customer while continuing sharp gains in other operations. Preliminary estimates by Telscape management of the hit to operating income were in the range of $2.5-3.0 million; the actual write-off was $2.0 million.
Our estimate of gross profit was close ($4,111,000 estimate versus $3,780,000 actual), other actual expenses were lower than our forecast. As a result, reported net loss of $0.13 per share was sharply lower than our original estimate of a loss of $0.21/share.
Based on these results, our estimate of 1998 revenue of $136,000,000 looks comfortably achievable, as do our 1998 per share estimates. We will publish a revised revenue model later this fall. We will need to factor in the additional interest expense associated with the proposed bond underwriting and we will know more about revenue streams from the recently announced operations.
The recent election to the board of directors of Jack Fields, retired US Congressman, former chair of the House Telecommunications and Finance Subcommittee and co-author of the Telecommunications Act of 1996 bodes well for Telscape's future. Telscape must negotiate the regulatory environments of US and Latin American markets, so what better choice than the writer of the regs. Coincident with the election, Fields is purchasing Telscape shares outright, which we regard as a positive commitment.
Lastly, both stock price and daily trading volume are inching higher. We think that the stock price is coming out of the "penalty box" and we maintain our 1 year price target of $28/share.
Best regards,
David Edwards
Heron Capital Management, Inc.
heroncapital.com |
