Tele Norte Leste Part S A NYSE: TNE
Last Update: 12:57:00 PM ET Aug 12, 2001
Deadbeats to dent Brazil Telemar's Q2 earnings
By Renata de Freitas
SAO PAULO, Brazil, Aug 12 (Reuters) - The lightning expansion of Brazilian
phone company Telemar's wireline network, already the country's largest, will
prove a double-edged sword for its quarterly earnings, to be reported Monday,
analysts say.
Telemar (TNLP4)(TNE), with a network that stretches from the beaches of Rio
de Janeiro to the deepest Amazon across 16 states, will show an increase in
provisions for unpaid bills although steep growth in line installations should
bolster its cash flow, according to six analysts polled by Reuters.
Telemar is forecast to report second-quarter earnings on Monday after the
close of trading.
But while analysts agree on the trend of Telemar's earnings and recommend
buying the stock, their forecasts for net profit and cash flow vary widely.
Analysts' forecasts of quarterly net profit ranged from 24 million reais ($10
million) to 213 million reais. That compares with an adjusted second-quarter
2000 profit of 164 million reais.
For earnings before interest, taxes, depreciation and amortization (EBITDA) --
a measure of cash flow -- analysts forecasts ranged from as low as 975
million reais to 1.2 billion reais. In the second quarter of 2000, Telemar's
EBITDA was 965 million reais.
Analysts with Deutsche Bank, who came up with the most reserved
predictions for Telemar profits in their report last week, expected second
quarter revenues to grow 7 percent, in line with the results posted in the
previous three-month periods.
Yet they noted that the number of unpaid bills had risen sharply reaching 4.6
percent of gross revenues compared to 2.8 percent last year, which should
affect profits.
"Apart from that, we are concerned with the expansion ofthe number of
employees by 39 percent year-on-year and 14percent in the last quarter
compared to thew previous one," thereport said.
"In the long term, we are concerned about Telemar's aggressive network
expansion strategy and the diversification of revenues." Still, the Deutsche
Bank analysts have a "strong buy" recommendation on Telemar.
Banco Santander analysts, whose projections were the most optimistic, note
that unpaid bills and blocked debtors' lines -- which amount to 8 percent of all
Telemar's lines -- represent a problem, but in their view it is outweighed by
lower costs of services that boost EBITDA.
According to Santander's report EBITDA margin should reach 46.9 percent in
the second quarter, compared to 45.7 percent in the previous three-month
period.
Still, Santander's analyst Bruno Queiroz told Reuters he expected Brazil's
economic problems, such as the depreciation of the real currency, to
continue affecting Telemar in the form of unpaid bills in the third quarter, too.
($1=2) REUTERS
Rtr 12:57 08-12-01
Selector Code: reucoCopyright 2001, Reuters News Service
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