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

To: DMaA who wrote (1224)	3/16/1998 8:42:00 PM
From: Fred Levine	Respond to of 22640

Regarding Brazil's potential productivity, an article in the beloved and accurate NY Times some 3 months ago discussed Brazil as having a surplus of very skilled computer programmers who were being recruited to work for US firms at much higher salaries. In addition, when I visited there some 10 years ago and gave talks at a University, I was very impressed by the quality of the graduate students. There is a large pool of brain power which will be harnessed when the beauracracy of government is lifted. good investing-- fred

To: DMaA who wrote (1224)	3/17/1998 9:17:00 AM
From: DMaA	Respond to of 22640

Smart Money article on TBR: SmartMoney: Street Smart: Telebras Does the Breakup Samba This story appears in the April issue of SmartMoney magazine. By David B. Lipschultz The breakup of AT&T in 1984 was a seminal event in U.S. financial markets. Not only did it create the seven Baby Bells, but it made companies like Sprint, MCI and WorldCom possible, and in the process made big profits for investors who played it right. Now the stage is being set for another huge phone-company breakup, and investors are again agonizing over how to play the game. Telebras, the government-controlled Brazilian phone monopoly, is set to be privatized and divided into 12 new companies this summer. We picked the stock last year (see "The Final Frontier?," May) when it was trading at $107, and watched as it soared to $169. But panic selling set off by the Asian economic crisis sent Telebras, which is the most heavily traded and one of the most widely held American Depositary Receipts, crashing to earth. We think that was an overreaction and, despite Brazil's economic slowdown, that the stock is a good value at its current price of $117. Why? Because pent-up demand for phones (a yearlong wait is common) has made Telebras one of the fastest-growing phone companies in Latin America. Its growth rate, along with its low debt level, makes the company's earnings almost recession-proof. Yet based on its price-to-cash-flow ratio, its price is 26 percent below that of the average Latin American phone company. This makes it "one of the cheapest telecom stocks in the world," says Tony Figueiredo, an analyst at Caspian Securities. But this stock is no layup. The breakup and privatization of Telebras into 12 "Baby Bras" is still in flux, though the government's need for cash makes it almost certain the deal will go through this summer. The result will most likely be that each of your Telebras ADRs will be divvied up into 12 different stocks. You will be the proud owner of eight cellular, three wired and one long-distance phone company. The larger companies are expected to trade as ADRs on the New York Stock Exchange, where Telebras trades now, while the smaller cellular companies will most likely trade as less liquid over-the- counter stocks. There are two ways to play the breakup. If you don't want to worry about the prospects for the newly created companies, your best bet is to sell. But be patient. Bidders, including American phone companies, are expected to pay top dollar for the most attractive pieces of the pie, so the share price will probably rise as the breakup approaches. Don't get too greedy, though. "I know a bunch of brokers that have sell orders for June right now," says Don Hoskins, a fund manager at Excelsior Latin America. [MY NOTE: I've never heard of a sell order by date. Jeremy, can this be correct? ] If, on the other hand, you are willing to live with some uncertainty, hold on to the stock through the breakup. This will get you the best possible price on the most attractive Baby Bras. The downside is that you might get stuck with some awful companies. But, says Hoskins, "if you even get some dogs, the gain on the good buys will definitely outweigh the loss on the bad ones." Another risk is liquidity, especially if other investors are bailing out at the same time. And don't forget the cost of trading 12 stocks. It's still too early to pick the best new companies, but analysts are focusing on Telerj and Telesp, which provide wired and cellular service to the Rio de Janeiro and Sao Paulo markets, respectively. They also like Embratel, Brazil's long-distance company. Investors should do well with either strategy. Just keep in mind the vast potential of the Brazilian telecommunications market. That growth will now be in the hands of some top-flight managers. So if you decide to get out of Brazilian telecom, don't stay out for long. When the smoke clears, all the bargains might be gone.