Brazil's Telemar Meets 2nd Quarter Views, But Outlook Dim
Dow Jones Online News, 08/14/2001 09:27
By Terry Wade
Of DOW JONES NEWSWIRES
SAO PAULO -(Dow Jones)- Brazil's biggest phone company posted results late Monday that were within analysts' estimates, but only after forecasts were cut on a July profit warning
Tele Norte Leste Participacoes SA (TNE), or Telemar, showed strong top line growth, while its bottom line was hit by higher debt costs and surging payroll expenses.
And the problems that are hitting its bottom line may continue for the rest of the year as the company spends heavily to expand its network to meet regulatory targets and Brazil's economy slows.
"Telemar appears to be suffering from a double whammy: it is being forced by the regulators to make unproductive investments in a bad economic environment," Bear Stearns said in a Tuesday research note.
Nonetheless, analysts see most of the bad news priced into the stock, as the company has already seen its American Depositary Receipts slip about 50% over the past 52 weeks, in line with other local telecom stocks.
In Sao Paulo, the local bellwether's preferred shares were down just 0.1% at 31.55 reals ($1=BRR2.48) in midday trade Tuesday. Investors were warned last month about the company's huge capital expenditures budget for 2001 and debt ills.
To expand nationwide or start offering wireless services in January, Telemar - like other regional fixed-line carriers here - is racing to install phone lines to meet service expansion targets set by regulator Anatel.
In the first half, the company burned through BRR4.1 billion reals in capital expenditures, about half of the BRR8.4 billion slated for the year.
The growth drive boosted the carrier's number of installed lines 39% to 15.7 million from a year earlier, while net revenue jumped 25% to BRR2.438 billion.
But the expansion effort - which included hiring 3,800 people in the second quarter - drove up payroll expenses 33% and ran the company into lower-income clients.
As a result, bad debts climbed to 4.6% of first half gross revenue of BRR4.7 billion, up from 1.8% last year.
The drive to add lines may take some more time to pay off - and some of those new lines are no sure thing.
"Alarmingly, Telemar disconnected half of the lines it installed in the second quarter," Deutsche Bank said in a Tuesday research note for investors. The carrier installed 993,000 lines in the quarter, but disconnected 472,000 lines tied to delinquent accounts.
Telemar isn't suffering through the problem alone, as other regional phone giants also struggle to collect bills.
Brasil Telecom Participacoes SA's (BRP) bad debt levels rose to 6.1% of gross revenue in the second quarter from 3.2% a year earlier.
Telefonica SA's (TEF) local unit Telecomunicacoes de Sao Paulo SA (TSP), or Telesp, said its bad debt levels in the second quarter were about flat from a year ago, at 2.4%.
-By Terry Wade, Dow Jones Newswires; 5511-3145-1479; terry.wade@dowjones.com
(This story was originally published by Dow Jones Newswires)
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