2 key announcements from Telscape in the last 24 hours:
1. National Market Listing improves liquidity, visibility, will support more institutional buying.
2. Filing to sell roughly $50 million in equity, $125 million in debt. This underwriting, which we anticipated in our recent research report, will enable Telscape to build its fiber optic network in Mexico and enhance other operations throughout Latin America. We had identified this financing as a major risk, but short of a disastrous road show, this risk should be removed. The co-managers BT Alex Brown and Lehman Brothers will do the heavy lifting in introducing Telscape to the large funds, so we expect a generally positive impact on the stock price.
At the same time, dilution from the nearly doubling in shares and the interest load will significantly reduce earnings per share - we will have an updated research report later this fall taking these factors into account in coming up with EPS estimates for 1999.
The SEC filing announcing this underwriting should be available on Edgar within 24 hours sec.gov
The prospectus should be available from BT Alex Brown late August, early September.
You can also anticipate a favorable research report from BT Alex Brown late September, and also possibly a report from Lehman Brothers the co-manager.
There are two other analysts besides Heron Capital covering Telscape - Ferris Baker Watts in Baltimore and Preferred Technology in San Francisco, all three with Buy ratings even after taking into account this quarter's bad news. 1998 revenues range from $125-135 million. We maintain our 12 month price target of $28/share despite the recent weeks lackluster stock price performance. TSCP is in a technical pattern we call "the penalty box" which is typical of a company with a recent disappointment. Momentum players, of which quite a few have visited this posting, have moved on from the stock leaving only the long term investors. For about a quarter on average, the stock must languish in the "penalty box" until some good news attracts interest all over again.
Telscape earnings are due around August 15th - any improvement over the currently sharply reduced estimates could prove to be a catalyst for upward movement in the stock.
Best regards,
David Edwards
(212) 410-7951
Heron Capital Management, Inc.
heroncapital.com |
