Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Telebras (TBH) & Brazil -- Ignore unavailable to you. Want to Upgrade?

To: DMaA who wrote (377)	11/11/1997 6:46:00 PM
From: Uncle Mikey	Read Replies (2) \| Respond to of 22640

I don't know if this has been posted - text from a Lehman Bros report on TBR from 11/3. Hope it dispays OK.... Headline: Telecomunicaes Brasileiras S.A.: 3Q97 Results Above Expectations Author: Matthew Hickman 1(212)526-3362 Rating: 1 Company: TBR Country: SEO CBZ Industry: TELECM Ticker : TBR Rank(Prev): 1-Buy Rank(Curr): 1-Buy Price : $101 52wk Range: $165-50 Price Target:$175 Today's Date : 11/03/97 Fiscal Year : DEC Telebrs reported third quarter consolidated net income of US$2.63 per ADS, higher than our estimate of US$2.35 per ADS, and substantially above the consensus estimate of US$2.53 per ADS. * Given the 31.5% drop in the share price since October 21, Telebrs remains extremely cheap relative to the other Latin telcos. We have argued for some time that the stock price depends more on the expansion of valuation multiples than on short term earnings, however, this result confirms a strong near term trend. We continue to believe that Telebrs represents good fundamental value and we reiterate our 1-Buy recommendation. On Friday, October 31, 1997, Telecomunicaes Brasileiras S.A. (Telebrs) reported third quarter net income of US$2.63 per ADS, well above our estimate of US$2.35 and the consensus estimate of US$2.51 per ADS. The company reported third quarter consolidated net income of R$926 million, a nominal increase of 45.4% versus the third quarter of 1996. Net operating revenue increased 33.3% to R$4,140 million in the third quarter. Fixed line growth of 12.2% was a main driver of revenue growth in the quarter. Similarly, cellular and public phones grew 69.9% and 18.2% versus the third quarter of 1996. For the second consecutive quarter, traffic growth remains strong in the long distance segments but weaker in the local service. For the third quarter, domestic and international long distance traffic increased 11.3% and 22.3%, respectively. However, lower pricing has yet to translate into higher traffic per line in the domestic long distance market. Sequentially, DLD minutes per line declined 4.4%. ILD minutes per line only increased 0.8%. Due to higher pricing and solid access line growth, local measured service revenues nominally increased 43.5% to R$860m in 3Q97. However, traffic per access line in service declined 4.8% year over year and declined sequentially for the ninth consecutive quarter. Local measured service revenues accounted for 15.9% of gross operating revenues in 3Q97, down from 16.7% in 2Q97. Domestic long distance revenues declined 16.1% to R$1,338m in 3Q97, due to lower pricing and weaker year-over-year volume growth than in previous quarters. Domestic long distance revenues comprised 24.8% of Telebrs' gross operating revenues in 3Q97, versus 30.0% in 2Q97. Similarly, outgoing international long distance revenues declined 16.7% year-over- year to R$80.5m in the third quarter. Conversely, incoming international revenues increased 22.2% in the quarter. Revenue patterns from Telebrs' international long distance segment were direct opposites from those of the second quarter where outgoing ILD increased 4.1% and net settlements declined 8.1% from 2Q96. Even though Telebrs did not release the breakdown of international traffic, we assume that the difference in the year-over-year revenue percent change between the second and third quarters is due to a different composition of international traffic. The cellular segment continues to show impressive results. Cellular telephone revenues increased 110.8% to R$1,145m in 3Q97 and reflected 69.9% subscriber growth. A positiive sign for Telebrs is the pickup in revenues per cellular subscriber. In the third quarter, the company reported revs/sub of R$332 versus R$318 in 2Q97 and R$267 in 3Q96. This is consistent with the fact that there is still huge unmet demand for cellular service. Telebrs' operating expenses increased 29.4% to R$2,592 in 3Q97. Payroll expenses increased 0.9% to R$675m in 3Q97 despite a 4.3% reduction in headcount. The company's operating margin increased from 34% in 3Q96 to 39% in 3Q97. Depreciation expenses increased 15.3% to R$1,027m in 3Q97 from R$891m in 3Q96. EBITDA for the quarter increased 29.1% to R$2,576m in 3Q97 and, consequently, Telebrs' EBITDA margin declined slightly from 64% in 3Q96 to 62% in 3Q97. This is still one of the highest EBITDA margins of any Latin American telecoms services provider. We reiterate our 1-Buy recommendation and a price target of US$175. Telebrs was cheap before the recent market sell-off and now presents an exceptional buying opportunity. We believe that the sell-off is entirely related to macro-economic factors and not to telecoms specific factors. Lehman Brothers' Latin American Economics group is confident that the Brazilian economy can withstand the pressures which have built on the currency. On this basis, we continue to recommend Telebrs to investors. Disclosure Legend: A-Lehman Brothers Inc. managed or co-managed within the past three years a public offering of securities for this company. B-An employee of Lehman Brothers Inc. is a director of this company. C-Lehman Brothers Inc. makes a market in the securities of this company. G-The Lehman Brothers analyst who covers this company also has position in its securities.