Lehman reiterated BUY; target $55; 2Q99 analysis
lehman.com
RSL Communications: Europe Delivers The Growth, Bull Case Intact, 7/27/99
* RSL's Q2 was in line, driven by the European business which grew revenues a
strong 17% sequentially, providing visibility that the company's main value
engine is performing.
* European revenues were $178M, up $26M organically vs. Q1. RSL's gross
margin expanded 220 bps vs. Q1 (100 bps higher than our estimate), driven by
Europe (36.3%, 130 bps ahead of our est). Consolidated revs were up 8% vs. Q1
to $368M, vs our $372M est. with the US approx. 3% below our estimate.
* We expect Europe's momentum to continue in 2H, with sequential growth in 2H
averaging a healthy 15%+. Continued execution in Europe should provide fuel
for the stock, and support for a sum of the parts valuation and our sum of
the parts investment thesis.
* Initiatives anticipated: a restructuring of the US in the next 1-2 mos
(away from prepaid/wholesale), and a possible listing in Australia of RSL's
business there. Along with the potential IPO of RSL's IP Telephony unit Delta
Three, we believe the case for a sum-of-the parts valuation is improving.
* With a solid quarter and outlook for Europe, the likely restructuring/sum
of the parts initiatives ahead, and a end-user focus, we believe the bull
case for RSL is intact. At 1.3X run rate revenue, RSL trades at less than
half our sum of the parts which is dominated by Europe. |
