Globalstar and Telscape are going after different markets - Globalstar is hoping to cover price insensitive customer willing to pay $3/minute for unlimited roaming, Telscape is covering price-senstive businesses and individuals hoping to pay under $0.20/minute. Data traffic will account for a large portion of Telscape's business, little of Globalstar's business. Also, Telscape's network will allow it to capture more of international calling - 70% of Telscape's traffic is US to Mexico, and then Telscape pays an accomodation to TelMex to complete the call. (Globalstar may well end up directing traffic through Telscape's network as a cellular caller connects to a fixed line caller.)
Globalstar faces a 12-18 month delay in rolling out its system following last weeks launch explosion, by which time implementation of Telscape's fiber network should be well under way.
Sat in on last week's Telescape management conference. Christ & Binet couldn't say much since the company is in the quiet period surround registration. Key points were:
1. Revenues and revenue growth on track
2. Margins steady and expanding
3. Two additional termination countries by year end
4. Financing strategy for Fiber Network evolving to face market realities - e.g. some bank financing, some vendor financing, smaller debt, equity offering.
5. Companies costs primarily in Latin American currencies, revenues primarily in dollars, so company gaining from declines in Mexican Peso, Brazilian Cruzero etc.
Stock obviously hammered over the last 8 weeks. We hear from market makers that several margined shareholders were closed out and we suspect that the MM's still have a lot of Telscape in inventory.
Quick check of financial ratios at, for example, MarketGuide site marketguide.com
shows Telscape at a screaming bargain relative to peers based on P/E, P/S, ROA, ROI, revenue and earnings growth rates. Margins are weaker than industry averages reflecting calling card operations.
None of the above seems to matter right now, perhaps because investors have linked Telscape's stock price performance to that of Brazil (down 56.8% YTD), Mexico (down 57.6% YTD)etc.. We may well have to wait through next earnings release (first two weeks of November) to see a sustained increase in the stock price.
Best regards,
David Edwards, President
Heron Capital Management, Inc.
(800) 99-HERON
heroncapital.com
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