More of the pt-1 report from Bear yesterday:
One distinct advantage to the purchase accounting method is
note worthy. With purchase treatment, management can issue
shares and options to key distributors in exchange for multi-year
exclusive distribution contracts with performance requirements
structured in. This could be a significant competitive advantage to the
PT-1 debit card business going forward, and since investors
appear concerned about distributors going over to competitors,
this should be the final nail in the coffin of one of the major
fears investors have expressed with respect to the transaction.
Based on the analysis of STAR's second quarter results, we are
revising our estimates for STAR for both 1998 and 1999 on a
standalone basis. While minutes growth and profitability were
extremely robust in the quarter, the revenue mix has shifted
toward lower-priced, higher-margin routes in Europe. As such, we
have brought our expected rate per minute down going forward. We
are now forecasting revenue of $602 million and EPS of $0.32 in
1998 and revenue of $827 million and EPS of $0.50 in 1999. While
this may seem like a steep reduction in our 1999 EPS outlook, we
would point out that revenues continue to be extremely robust
because of solid minutes growth and execution on STAR's expansion
plans. This revision also includes a penny of dilution in 1998
for the acquisition of Qwest fiber, although we have attempted to
factor in cost benefits going forward. Also, we are still
looking for 56% EPS growth from 1998 to 1999 and expect EPS
growth to continue at the 40% plus level for several years to
come. As such, the current multiple of 32.6x our 1999 EPS
forecast seems quite low.
Finally, we have used the FCC's decision as an excuse to
revisit our pro forma model for STAR/PT-1 and are presenting our
expectations below. We would point out that we have received
little guidance on 1999 from management as they are still working
on their own expectations for the combination, but believe we
have taken a fairly conservative stab at both PT-1's potential
top-line growth and the potential for cost savings on the network
side from the combination. With purchase accounting factored in,
we are looking for revenues of $726 million and EPS of $0.33 in
1998 and revenues of $1,465 million and EPS of $0.74 in 1999.
Even with purchase accounting, this transaction is not only a big
strategic plus, but accretive to shareholders as well.
Can't confirm that this is verbatim--This is exactly how it was sent to me though.
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