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

To: Steve Fancy who wrote (965)	2/8/1998 5:21:00 PM
From: Weekapaug	Read Replies (1) \| Respond to of 22640

Steve, Todays NYTimes had article about vote on Thursday. Demonstrators from the left broke down a bullet proof door to stop the vote. President of the senate ordered the police to "shoot to kill" if they made there way in before vote was taken. Congressmen blocked other door to prevent protestors from getting in and to prevent other members form leaving before vote was taken. This might account for what I'll call "stange action of TBR" lately. Could it be the reason for downgrade? Who knows? But it does send shivers up my spine to think about how violent this privatization is becoming? Codorso insists in article "structual problems don't change in 3 to 4 years, you can only help along a tendency, create a body of policies, that can have an effect." He referred to the Civil Rights struggle hear as example and how " far ahead the talk was to the practice." What a deal Civil Servants pensions can be collected at age 50. Equal to full salary and continue working getting raises and promotions along the way. Claims it will save 10 billion right away, if final vote is passed. Just seems to me "delays are at hand for awhile." We'll see? Ken

To: Steve Fancy who wrote (965)	2/9/1998 1:44:00 PM
From: Steve Fancy	Respond to of 22640

RESEARCH ALERT - J.P. Morgan names top LatAm picks Reuters, Monday, February 09, 1998 at 09:39 NEW YORK, Feb 9 (Reuters) - J.P. Morgan analysts picked their 14 best Latin American stocks for this year, with Brazilian steel maker Companhia Siderurgica Tubarao (SAO:CST) in the top spot. A partial and edited text of J.P. Morgan's analysis follows: J..P. Morgan recommends 14 best Latin American stocks for 1998 J.P. Morgan equity analysts present their 14 best Latin American stock picks for 1998 in nine sectors and project an average dollar return of 43% for the year. Morgan's top pick for 1998 is Brazilian steel manufacturer CST with a projected return of 65%. Analysts have selected companies in the sectors of banks, beverages, conglomerates, oil & gas, electric utilities, telecommunications, steel, retailing, and media in Argentina, Brazil, Mexico, and Venezuela. Morgan's top picks trade at an attractive average multiple of 16.4 times 1998 earnings and 11.8 times 1999 earnings. EBITDA growth for the JPMS focus list should be strong at 28% this year, resulting in average FV/EBITDA multiples of 7.6 times in 1998 and 5.4 times in 1999. The selections are: Banco Frances (BUE:FRA) (NYSE:BFR); beverage companies Coca-Cola FEMSA (NYSE:KOF), Panamerican Beverages Inc (NYSE:PB), Quilmes Industrial (LUX:QUIN) (NYSE:LQU); and conglomerates Alfa (MEX:ALF.A) and Desc Sociedad de Fomento Industrial SA de CV (NYSE:DES) (MEX:DSC.B). They also picked media company Grupo Televisa (MEX:TLV.L) (NYSE:TV), oil company Petrobras (SAO:PET), retailers Cifra SA (BB:CFRAY) and Kimberly-Clark de Mexico (MEX:KMM.A), steel maker Companhia Siderurgica de Tubarao, telecommunications companies Telebras SA (SAO:TEL_.P) (NYSE:TBR) and CANTV (VEN:TDV.D) (NYSE:VNT), and Brazilian power utility Cerj (SAO:CMI). J.P. Morgan's top 10 picks for 1997 posted an average price gain of 47% in dollar terms, outperforming returns of several market benchmarks, including the S&P 500, DJIA, IFC Investable Latin America Index, and the MSCI Latin America Index. This group also exceeded the dollar performance of all Latin stock markets (except Mexico). Copyright 1998, Reuters News Service

To: Steve Fancy who wrote (965)	2/9/1998 1:47:00 PM
From: Steve Fancy	Read Replies (1) \| Respond to of 22640

BRAZIL CONGRESS WEEK-Reform drive heads for climax Reuters, Monday, February 09, 1998 at 10:42 By William Schomberg BRASILIA, Feb 9 (Reuters) - The Brazilian government's deficit-cutting social security and civil service reform bills were due to enter the home stretch in Congress this week, nearly three years after they were sent to parliament. The social security reform bill, approved amid a punch-up in a lower house panel last week, was set for a first of two full votes on the Chamber of Deputies floor Wednesday. Also on Wednesday, the Senate was scheduled to hold its first full vote on the civil service reform bill. The government wants to avoid delays. This week is the last of an extraordinary session of Congress which is only due to get back to business in March, after the Carnival holidays. Both bills are expected to clear Congress finally in mid-March when they face second votes in their respective houses. As constitutional amendments, they require two three-fifths majorities each to clear their final legislative hurdles. The civil service reform bill was approved in the Chamber of Deputies in December last year. The social security bill has already been through both houses but is back in the Chamber of Deputies after being substantially rewritten in the Senate. The government is widely considered to have enough votes in the Senate for the civil service reform bill. That reform will cap public sector pay and pensions and allow hard-up states and municipalities to cut staff. Officials have said the bill could save up to $9 billion a year. Political analysts predict the government also has enough support for the more controversial social security reform bill in the volatile Chamber of Deputies. Ricardo Pedreira of consultants Santa Fe Ideias said violent scenes prior to a committee-level vote on the bill last week, when left-wing lawmakers and trade unions members traded punches with security guards, had strengthened the government's hand. "I spoke with several deputies who are in theory allied with the government but often vote with the opposition and they were appalled by what happened on Thursday," Pedreira said. To make sure it has the 308 votes needed to approve the bill, the government has said it will drop some unpopular items of the reform, including a proposal to levy social security contributions from pensioners. However, the bill's central points -- the introduction of minimum retirement ages and the linking of pensions to contributions -- have not been affected by the changes, a spokeswoman for the Social Security Ministry said. The government hopes that approval of the reform will stem a deficit in the social security system, set to pass $5 billion this year, and bring it into equilibrium by 2000. While less radical than originally proposed by the government, the reforms are seen as the only chance Brazil has of narrowing its public sector deficit currently running at about five percent of gross domestic product. President Fernando Henrique Cardoso says the bills must be approved before campaigning for October's general elections gets underway in April or May. Cardoso wants to show investors that Brazil is taking steps to ward off the kind of financial trouble which hit Asia. As well as the reforms, other important bills are on the agenda this week in Congress. In the Chamber of Deputies, a committee was due to vote Wednesday on a bill which would make it easier to introduce tax and political reforms during a special, one-year period in 1999. The bill would reduce the margin of votes needed to approve constitutional reforms in those areas to a simple majority, down from the normal three-fifths majority required. And in the Senate, a bill which would reform Brazil's soccer industry was set for a final vote either Tuesday or Wednesday. The bill, drawn up by former soccer idol Pele who is now sports minister, would require football clubs to become private companies within two years, opening up opportunities for investors and reducing the scope for corruption. william.schomberg@reuters.com)) Copyright 1998, Reuters News Service

To: Steve Fancy who wrote (965)	2/9/1998 1:49:00 PM
From: Steve Fancy	Respond to of 22640

RESEARCH ALERT-FULL TEXT- Eletrobras (SAO:ELE) buy Reuters, Monday, February 09, 1998 at 11:45 NEW YORK, Feb 9 (Reuters) - Salomon Smith Barney said on Monday it reiterated its buy on shares of Centrais Eletricas Brasileiras SA and raised its earnings estimates on the stock. The following is the full report. SALOMON SMITH BARNEY Company: CAIGY - Eletrobras S.A. Headline: REITERATING BUY DESPITE UNCERTAINTIES-RAISING EARNINGS ESTIMATE Price (02/06/98): US$ 23.64 Target Price: US$ 32.00 Analyst: Sandra L. Boente Release Date: 02/09/98 Current Rank: 1-S Prior Rank: (212) 816-6447 --SUMMARY:--Eletrobras S.A.--Brazil Privatization should provide a catalyst for Eletrobras shares in 1998 and we are reiterating our 1S rating on the stock. Eletrobras is 34 percent undervalued in our view. We are revising our 98 EPS estimate upwards based on 30 percent operating efficiencies after-privatization, and larger Interest on Capital payments. We are introducing a $2.55 1999 EPADR estimate, as well. We have revised our 12-month price target down to $32.00 from $39.00. This is primarily owing to revised macroeconomic assumptions, and a more conservative valuation of Eletrobras' assets on the back of changes in regulations. --EARNINGS:---------------------------------- FYE 1 Qtr 2 Qtr 3 Qtr 4 Qtr Year US$ 12/96 EP/ADR 0.62A 1.17A 0.69A 1.35A US$ 2.14A R$ 12/97 EPS 1.49A 1.28A 1.73A 1.79A R$ 6.29A US$ 12/97 EP/ADR 0.70A 0.59A 0.79A 0.65A US$ 2.82A R$ 12/98 EPS N/A N/A N/A N/A R$ 5.21E US$ 12/98 EP/ADR N/A N/A N/A N/A US$ 2.19E R$ 12/99 EPS N/A N/A N/A N/A R$ 6.37E US$ 12/99 EP/ADR N/A N/A N/A N/A US$ 2.55E --OPINION:----------------------------------- PRIVATIZATION SHOULD BE THE DRIVING FORCE BEHIND STOCK APPRECIATION We are reiterating our 1S Buy rating on Eletrobras because we believe that privatization will provide the catalyst for stock appreciation over the next twelve months. Furthermore, BNDES/Eletrobras' upcoming road show is likely to have a positive impact on the stock, as it will showcase the advances in the privatization program and dissipate doubts about the company's long-term plans. The upside to Eletrobras stock post-privation was reinforced by the government's recent announcement that it may provide 8-year volume contracts at regulated prices for those generators that are privatized, delaying a fully competitive price structure until the year 2006. This will ease Eletrobras' passage from a monopoly to competitive company and be the basis for a period of secured operating margins thanks to efficiency gains. Moreover, last Friday's announcement of the expiration of the RGR tax in five more years, will come to the rescue of any potential slide in margins just in time when competition opens up. Longer term, its low debt load provides opportunity for leveraged growth. Eletrobras owns over 32,347 MW of installed capacity and 28,259 miles of transmission lines. Its plants are relatively new, well-maintained, with a long remaining useful life, and low operating costs as 90 percent of its capacity comes from hydroelectric plants. It has a remarkably low net debt position with $10.3 billion in net debt compared to $65.4 billion in assets, which allows material room for growth through leverage. EARNINGS REVISED UPWARDS We have raised our 1998 EP/ADR to $2.19 up from $1.17, and established and EP/ADR estimate of $2.55 for 1999. We base the revision on increases in sales volume, 30 percent lower personnel and supply costs on those subsidiaries that are privatized, and the inclusion of significant interest on capital payments. EP/ADR for 1998 are falling compared to 1997 results ($2.82 EP/ADR) due to an anticipated $420mm provision related to lawsuits against Eletrobras' subsidiary Chesf. ANY WAY YOU LOOK AT IT, ELETROBRAS IS A GOOD VALUE Based on each of the three valuation parameters we examined, Eletrobras appears inexpensive. We have calculated the value of Eletrobras' future cash flows, discounted at what we believe are very conservative rates. Given the varying nature of Eletrobras' three main asset bases (power generation plants and transmission lines; lending portfolio; minority holdings in other electric utilities), we have used separate methodologies to value each one of its businesses. We have calculated the discounted cash flow value of each of the company's four generation subsidiaries, and then valued its financing operations by discounting its future net interest margin. Lastly, we priced Eletrobras' minority holdings in other companies at market. In this manner, we arrived at an equity value of $19 billion for its power business, assuming the company's current tariff structure stays intact and up to 30 percent efficiency gains are extracted from the companies once privatized, and applying a discount rate of 13.3 percent. For its financing operations, we assumed no loan portfolio growth, effected the securitization of Itaipu's receivables to repay RGR debt, and applied a high 20.4 percent discounting rate. We derived a net value of $6.9 billion for Eletrobras' "bank", a conservative figure well below consensus. Lastly, we added the current market value of Eletrobras' minority stakes in other electricity companies (an additional $4.9 billion), bringing Eletrobras' total equity value to roughly $31 billion. That is 25 percent above today's market cap of $25 billion. Copyright 1998, Reuters News Service

To: Steve Fancy who wrote (965)	2/9/1998 1:51:00 PM
From: Steve Fancy	Read Replies (2) \| Respond to of 22640

RESEARCH ALERT - S. Barney LatAm strategy outlined Reuters, Monday, February 09, 1998 at 11:58 NEW YORK, Feb 9 (Reuters) - Salomon Smith Barney strategist Jim Barrineau said Monday that money flows indicated optimism about Latin America and that Mexican fourth-quarter earnings results could see disappointments. A partial text of Barrineau's strategy brief follows: Money Flow: There seems to be a general sense of optimism from local and foreign investors, as the Asian New Year started. Note especially Brazil. Figuring that the market cap is about twice that of Mexico, local shares did substantially better than those of Mexico, while ADRs did worse in terms of simple inflows. Earnings Forecasts Post-Asia: Examining aggregate earnings growth estimate evolution since the markets caught the Asian Flu, we note that the big surprise drop was in Mexico, the place where investors might least suspect it. Argentina has held up well. > ============ > Money Flows and Stock Price Anomalies > > Money Money > Flow Flow > Last Week This Week > Argentina ======= ======== > Major ADRs 12.8 33.8 > Underlying local shares 16.3 5.2 > Remainder local shares -4.9 8.4 > > Brazil > Major ADRs 17.0 73.5 > Underlying local shares 690.3 1,042.4 > Remainder local shares 187.9 666.5 > > Mexico > Major ADRs -23.2 89.1 > Underlying local shares -1.3 4.3 > Remainder local shares -1.2 27.9 > > Chile > Major ADRs -2.5 9.9 > > All flows are net in US$ million. > This week is 1/29 to 2/5. Last week 1/22 to 1/29. > > Week's Top 4 Latin American Flow Ideas > %Price Money > Change Flow > ====== ===== > Petrobras PN local -2.2% 749.6 > Bladex BLX -0.3% 4.8 > Contr. Comercial Mex local 0.5% -1.9 > Bco. de Galicia local 8.1% -3.7 > > %Changes in US$ basis. Flows in US$ million. > Based on proprietary screen. A significant divergence suggests stock price > does not accurately reflect investor sentiment. > ====================================================== > The Evolution of Earnings Forecasts Post-Asia > We take a look here at aggregate 1998 earnings growth estimates for Latin American markets and what they have done in the months since Asian turmoil began to takes its toll on the region. The somewhat surprising conclusion: Mexican aggregate earnings estimates have come down the most. While other major markets have all come down to some degree, Chile has held up pretty well (without accounting for the recent interest rate hike). The data below is derived from IBES consensus estimates for index companies in each market. We would note that many strategists seem to be somewhat to substantially higher than these numbers in their own estimates. We believe they are overly optimistic, but two possible explanations are that they are using their own analyst estimates for the companies that they follow, or they are using estimates for companies outside the indexes. One of the problems of the latter is that the probability of including small stocks with huge earnings swings is increased, even though these stocks are thinly traded. > > Country Index Earnings Growth -- 98/97 > Oct23, 97 Nov 20, 97 Dec 18, 97 Feb 5, 98 > ======= ======== ======== ======= > Argentina 19.5% 15.0% 15.4% 15.0% > Brazil 18.6% 26.1% 23.5% > 14.3% > Chile 12.3% 16.3% 15.9% 15.7% > Colombia 4.4% 30.6% 31.4% 7.5% > Mexico 16.3% 10.7% 10.8% 5.8% > Peru 7.9% 10.3% 11.6% 12.0% > Venezuela N/A N/A 19.9% 6.1% > > We consider the smaller countries numbers somewhat less reliable as a market indicator, because of the significant variance in data. We would note that if one takes major companies in Colombia, growth amounts to less than double digits. > > Points to consider: > For Chile, the big hit from Asia is still playing out. The 150-basis point interest rate hike will cause earnings growth to skid substantially, and it could wind up the lowest of the major markets. The good news, however, is that some of the effects of this has already been priced in. The boldness of the Central Bank's move suggests that they wanted to get the Asian turmoil behind them quickly. That suggests to us that Chile could be an attractive market in the second half. Argentina after an initial trimming remains virtually flat. That is good news. We continue to believe that wiith lower expectations, as demonstrated by analyst's initial reaction, the possibility of upside surprises remains high. Cyclical sectors and telecoms would benefit. Most of the earnings growth story in Brazil is in the public sector, and we consider these numbers a minor factor in assessing future market movements behind privatization and reform progress. Nevertheless, we think the numbers suggest market sentiment could sour in the second half post-privatization as investors come to believe that the advantages of private ownership could be a longer time coming with lessened earnings growth. Mexico is a bigger surprise to us. We knew analysts were revising earnings upward at a slower rate, but the number above suggests that on aggregate analysts who have revised downward have done so robustly. Most of the damage, as we have pointed out in earlier work, has been in the retail and banking sectors. If we had to choose, we would suggest that downside surprises are more likely than upside surprises in fourth quarter reports Copyright 1998, Reuters News Service