Latam stock analysts see bargains, long-term value
Reuters, Wednesday, September 16, 1998 at 17:19
By Daniel Bases
NEW YORK, Sept 16 (Reuters) - Latin American equity
analysts said on Wednesday they believed stocks throughout the
region represented some of their best values in years for
long-term investors who did not expect prices to rebound all at
once.
Panelists expressed a common theme that Latam stocks at
current prices were bargains, with long-term value seen across
a broad range of industries including retailing, banks, steel
and paper, telecommunications, mining, beverages, electrical
utilities and oil and gas. They spoke to investors gathered at
the Council of the Americas in New York.
"If you've got a long-term horizon for the region, then
stocks in my sector don't come any cheaper," said Rowe Michels,
a Latin American electric utility analyst with Bear Stearns who
added that stocks were currently trading at levels not seen
since 1994-95.
The Asian banking crisis, particularly in Japan, was not
expected to have as severe an effect on the Latam banks because
they learned their lesson in 1994, when Mexico was forced to
devalue its currency, said one analyst.
"Since 1994, we had a period of self-prudence. There isn't
an asset bubble and there wasn't sloppy lending," said Daniel
Abut, senior analyst for Latin American banks at Goldman, Sachs
& Co.
"In the banking sector, Latin America has a lot of foreign
involvement and that helps, unlike Japan," which still doesn't
have direct foreign involvement, Abut noted.
However, Abut cautioned that Latin American banks could
lose capital quickly if there was a devaluation and that if
capital inflows remained low and interest rates remained high,
the growth of the sector is going to be low.
Abut conceded that "1999 may be lackluster for growth, but
for a long-term look, there is such enormous room for growth
going forward."
Lehman Brothers Latam retail analyst Alberto Montagne sang
that sector's praises, saying consolidation was helping to spur
Latin American retail growth.
"It's a fragmented marketplace," Montagne said, pointing
out the decline in market share of independent retailers and
the growth of large chain stores as evidence of heavy merger
activity.
Montagne recommended Mexico's Cifra (MEX:CIF.V) with a buy
rating, saying the company can weather an economic downturn
because it has $600 million in cash and zero debt. However, he
warned the company's expansion plans might be delayed.
Montagne also said consumers have so far avoided the pain
associated with the market's sell-off.
"The problems are not being seen yet in the supermarket and
department store retailers," Montagne said, adding that in a
recent trip to Chile, the stores were full of customers.
In the telecommunications sector, CS First Boston analyst
Ilana Treston, said the industry was entering a kind of
"mid-life crisis where the focus has to shift from wire-line
growth to traffic and data."
In 1990 through 1997, Latin American telecommunications
companies enjoyed monopolies that led to fat profits; pro-local
regulators that promoted infrastructure growth; under-served
residential and business markets to fuel growth; and foreign
investors to help finance that growth, Treston said.
But now, the markets are maturing with increasingly
competitive oligopolies in the private sector, pricing trends
that are shifting downward and financing tight with debt
burdens high relative to the unstable financial markets.
For Brazil's Telebras (SAO:TELB4) (NYSE:TBR), one of the most
liquid and visible of the Latam companies, Treston painted a
cautious picture.
"In Brazil there is a culture of nonpayment among consumers
and no mechanism to collect, an underserved market such as Sao
Paulo can't get more lines fast enough because of the tight
regulation," she said.
Treston believed the data market would drive Latam telco
growth, increasing capacity on existing lines with the wireless
market eventually taking over voice traffic.
As for Telebras, Treston said the company had low U.S.
dollar denominated debt, but not as much capital available as
other comparable companies, such as Mexico's Telefonos de
Mexico (MEX:TMX.L) (NYSE:TMX).
Given the regulatory and economic environment in Brazil,
Treston says, "give me Telmex over Telebras any day."
Copyright 1998, Reuters News Service |
