Same old crap from GKM:
Telecommunications--Wireless Cable -- 4Q Preview
08:25am EST 9-Jan-98 Gerard Klauer Mattison & Co. (Newman, A. 212-885-4054)
Telecommunications - Wireless Cable -- 4Q Preview
Arthur Newman Jill M. Loesberg
(212) 885-4054 (212) 885-4094
anewman@gkm.com jloesberg@gkm.com
January 9, 1998
Wireless Cable
Price Price EPS P/E Mkt Cap
Symbol-RTG 1/8/98 Target 1996 1997E 1998E 1997E 1998E (Mil)
____________________________________________________________________________
ATEL-N.R. $1.25 N.A. $(5.78) N.E. N.E. N.M. N.M. $35
CAWS-HOLD# 1.09 N.A. (1.73) (3.10) N.E. N.M. N.M. 51
HART-HOLD 1.75 N.A. (2.75) (6.60) N.E. N.M. N.M. 34
PCTV-HOLD 1.88 N.A. (6.26) (6.03) (10.99) N.M. N.M. 26
PYTV-HOLD 5.38 N.A. (0.22) (1.47) (1.80) N.M. N.M. 59
WIRL-HOLD 2.13 N.A. (2.65) (4.92) (5.10) N.M. N.M. 36
____________________________________________________________________________
N.A.-Not Applicable; N.E.-No Estimate; N.M.-Not Meaningful; N.R.-Not Rated.
#Fiscal year ends following 3/31; 1997 EPS is calendarized.
o Share prices of rural operators (HART and WIRL) should continue to lag
until operating performance improves and additional financing is secured. We
anticipate interest expense and capital expenditures will continue to be a
drag on cash. We believe these operators must migrate from subscribers to
EBITDA as the primary valuation metric.
o We expect urban operators (CAWS, PCTV and ATEL) to continue with a no-
growth strategy and search for strategic partners or acquirers. We believe
urban operators will seek to develop new revenue streams from high-speed
Internet access. High-speed access has significant potential for the
industry, in our opinion, but further clarification of FCC rules is needed.
o We believe wireless cable companies are attractive targets for companies
seeking a large block of spectrum and the ability to provide high-speed data,
as well as digital video, to the home. The FCC has committed to granting
operators flexible two-way use of spectrum, including voice, video and data.
o We do not foresee any near-term events that would significantly boost
share prices in the sector. Accordingly, we maintain HOLD ratings on HART,
WIRL, PCTV, PYTV and CAWS.
Wireless Cable
____________________________________________________________________________
Expected
American FY Quarterly EPS 4Q97E Full-Year EPS Reporting
Telecasting+* RTG End 4Q97E vs 4Q96 Cons. 1997E vs 1996 Date
(ATEL) NR 12 N.E. $(2.50) N.E. N.E. $(5.78) Mid-March
During fourth-quarter 1997, we expect nominal growth, if any, from the
141,600 subscribers reported in third-quarter 1997. DIRECTV signed an
agreement with ATEL to provide programming to ATEL's MDU customers in 33
operating markets. The service should begin to roll-out in early 1998. The
company recently launched a high-speed Internet access service in Colorado
Springs and is expected to launch additional services in Denver and Portland
in 1Q98. We expect the company will continue to pursue potential strategic
alliances.
____________________________________________________________________________
CAI Expected
Wireless FY Quarterly EPS 3Q98E Fiscal-Year EPS Reporting
Systems*+@ RTG End 3Q98E vs 3Q97E Cons. 1998E vs 1997 Date
(CAWS) HOLD 3 $(0.80) $(0.60) N.M. $(3.17) $(2.38) Mid-Feb.
CAWS continues to lose analog subscribers to hardwire cable systems due to
limited channel capacity in certain markets. CAWS' cash position remains
tenuous with an estimated $1million- $2 million balance as of 12/31/97. We do
not anticipate any near-term events that would alleviate CAWS' cash
constraints and provide it with a course for future growth. CAWS has an
option to repurchase $100 million of Bell Atlantic (BEL - 87.25) and NYNEX's
(NYN - 58) securities interest in CAWS for approximately $40 million plus
accrued interest by February 28, 1998. In addition, CAWS must repay a $25
million credit facility by February 20, 1998. CAWS still must seek a
strategic investor/partner to repurchase the Bells' investment and fund
ongoing operations. We estimate CAWS needs to raise approximately $200
million. We maintain our HOLD rating, as we remain concerned about CAWS'
ability to acquire both a strategic partner and incremental financing.
____________________________________________________________________________
Heartland Expected
Wireless FY Quarterly EPS 4Q97E Full-Year EPS Reporting
Comm.*+@ RTG End 4Q97E vs 4Q96 Cons. 1997E vs 1996 Date
(HART) HOLD 12 $(1.70) $(1.37) N.E. $(6.60) $(2.75) Mid-March
We believe HART has completed its internal operational restructuring and,
thus, we do not expect any one-time charges in 4Q97. Management reports that
it will relaunch its marketing program in 1Q98 pursuing the SFU and MDU
markets. We estimate the company will add approximately 10,000 new
subscribers in fourth-quarter 1997. Interest payments and capital
expenditures will continue to strain HART's tenuous cash position, leaving
the company with about $41 million in estimated operating cash at year-end
1997. Fourth quarter is critical for HART, as it needs to achieve meaningful
subscriber additions and improved operating performance before the company
will be able to approach the capital markets for additional funding. We
maintain our HOLD rating due to the continuing turnaround, need for financial
restructuring, concerns about financial controls and potential for further
earnings disappointments.
____________________________________________________________________________
Expected
People's FY Quarterly EPS 4Q97E Full-Year EPS Reporting
Choice TV*+@ RTG End 4Q97E vs 4Q96 Cons. 1997E vs 1996 Date
(PCTV) HOLD 12 $(1.82) $(1.95) N.M. $(6.03) $(6.26) Mid-March
PCTV launched a commercial Internet service in Detroit in October under the
brand name SpeedChoice, targeting small businesses. PCTV is currently
marketing its service for $599 per month for a 20-port modem, $399 per month
for a 10-port modem and $69.99 per month for a single-port modem. A combined
digital video and Internet launch is scheduled for Phoenix or Chicago in
first-quarter 1998. As of 9/30/97, PCTV had about $82 million in cash. We
believe PCTV's cash position is sufficient to support the commercial launches
of its services. PCTV reported 72,800 subscribers for third-quarter 1997, and
we expect nominal growth, if any, in its subscriber base during fourth-
quarter 1997. PCTV remains rated HOLD.
____________________________________________________________________________
Expected
FY Quarterly EPS 4Q97E Full-Year EPS Reporting
TV Filme*+@ RTG End 4Q97E vs 4Q96 Cons. 1997E vs 1996 Date
(PYTV)# BUY 12 $(0.41) $(0.11)$(0.36) $(1.47) $(0.22) Mid-March
# IPO completed in July 1996.
TV Filme is a leading provider of wireless cable in mid-sized markets in
Brazil, with three operating markets encompassing approximately 1.05 million
line-of-sight (LOS) households. We forecast about 9,500 new subscribers in
fourth-quarter 1997, revenue of approximately $14.0 million and EBITDA of
about $2.5 million. The company is currently in the process of filing
applications to acquire additional markets, which we expect to be awarded in
1Q98. The company is also experimenting with Internet access via wireless
cable. We maintain our HOLD rating due to continued delays in the auction
process and deteriorating outlook for EBITDA growth.
____________________________________________________________________________
Expected
Wireless FY Quarterly EPS 4Q97E Full-Year EPS Reporting
One*+@ RTG End 4Q97E vs 4Q96 Cons. 1997E vs 1996 Date
(WIRL) HOLD 12 $(1.31) $(0.99) N.M. $(4.92) $(2.65) Mid-March
WIRL is the dominant wireless cable operator in the southeastern US with
approximately 9.3 million LOS households, concentrated in markets that are
not passed by hardwire cable. We expect the company to report approximately
7,000 new adds in fourth-quarter 1997. Longer term, with BellSouth's (BLS-
56.81) growing interest in wireless cable systems, we believe WIRL could
eventually be an attractive acquisition candidate. We believe many investors
are awaiting further action by BLS and studying HART's performance as an
indicator of WIRL's future. However, we do not foresee any near-term events
that would lead to significant share appreciation. We maintain our HOLD
rating.
+Gerard Klauer Mattison & Co., Inc. is a market maker in the security of
this company and may have a long or short position.
*Within the past three years, Gerard Klauer Mattison & Co., Inc. was the
manager (co-manager) of a public offering of the securities of this company
and/or has performed other banking services for which it has received a fee.
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