3/30/01 5:13 AM
Source:Bloomberg News
Princeton, New Jersey, March 30 (Bloomberg Data) -- TyCom Ltd (TCM US)
was reiterated near-term ''buy'' by analyst Craig Irvine at Merrill Lynch.
The long-term rating was also reiterated a ''buy.''
Merril Note that goes along with the BUY today
TyCom (TCM, $13.65, D-1-1-9)
Sep01E $0.83; 02E $0.96
• While speaking at an investor conference on March 29th, TyCom management raised
their estimates for both revenue and EPS for the quarter ended March 2001. We are
adjusting our Q2 estimates accordingly.
• According to management, March quarter revenue should come in around 10% above
the consensus estimate of $500M, while EPS will fall in the $0.10-0.12/shr range (vs.
current consensus of $0.05/shr).
• The TyCom Atlantic undersea cable is on schedule and underbudget. Management now
expects total capex for FY2001 of around $2.6B (vs. $3.0B previously). Improving
scale economies in procurement were cited as an important factor. In addition to this,
we also believe that the original estimates were conservative.
• On pricing, management acknowledged that trans-Atlantic price erosion has exceeded
their original estimates. They now expect trans-Atlantic STM1s to sell for $700-900k
each this summer (vs. estimate of $1.1MM at last year’s IPO).
• Our European telecom equipment team downgraded Alcatel (ALA/ALALF; B-3-2-7;
Eur36/$34) this morning, citing expected 2002E weakness in subsea demand among
other reasons. While we agree that fewer new systems will be built in 2002E than in
2000-01E, TyCom is not relying on new systems to sustain growth. TyCom’s transition
to a service provider has already reduced its forward reliance on third party subsea
system supply demand as a growth driver. We already assume that system revenues fall
by 10-25% p.a. in the next few years as TyCom redirects manufacturing capacity for its
own use.
• We reiterate our intermediate and long term BUY ratings on TyCom. We are reviewing
our estimates to incorporate today’s comments from management, but the core
investment attraction for TyCom remains intact, in our view. Unlike most next
generation network builders, TyCom is profitable with net cash, positive net income and
proprietary technology. Multiples are attractive, in our view, compared to both service
provider and optical equipment peers. TyCom trades on an EV/adj EBITDA of 5.3x for
2001E, compared to Global Crossing (GX, D-1-1-9, $13.95) at 7.5x. |
