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

To: Steve Fancy who wrote (1239)	3/18/1998 9:05:00 PM
From: Doug Chin	Read Replies (3) \| Respond to of 22640

Is $300+ a reasonable target for TBR? I want to generate some rational discussion into what other peoples target prices are and how they arrived at the valuation. I may be WAY out in left field, but I would like to know before I make a bad move. To arrive at $300+ I am using the 1997 annual report from the TBR web site. Going to the last page of the report the earnings are broken down by company. I have then assigned a market cap to the various pieces using Earnings (1997 reported) * P/E (my guess) For example converting to US$ using a rate of 1.13Real. Telesp: Earnings = 1B Telemg: Earnings = 337M Telejr: Earnings = 225M Embratel: Earnings = 450M All the Remaining parts: Earnings = 1.3B Now lets say that you can justify a P/E of 20 for the top four parts of TBR. This is probably not unreasonable, given that the the S&P500 is valuation is in this range and there is lots of room for cutting costs (bloated org, nepotism, cronyism, etc....), + lots of room for increasing revenue. In fact you could probably justify a P/E of more than 20, but lets use 20 as a start. My second assumption is that the remaining pieces will also have value since you can also cut costs and increase revenue, but they don't have the same appeal. So let's say that they trade at a discount - lets use 15. so to get the market caps... Telesp: 1B * 20 = 20B Telemg: 337M * 20 = 6.7B Telejr: 225M * 20 = 4.5B Embratel: 450M * 20 = 9B All the Remaining parts: 1.3B * 15 = 19.5B Sum these up and you get 59.7B Quote.yahoo.com: says current market cap is 26.036 and share price is $132.625 I am assuming this is correct and this is what I am using to derive my share price, if this is incorrect my share price estimate will be way off. If anyone knows any better please let me know. So 59.7B/26.036B = 2.29 * 132.625 = $303.71 Now lets take this another step... Lets say Telesp should trade at a higher primium lets say 25... and as you can see it is easy to arrive at prices that are well in excess of $300/sh OK, so now I need some other research to see if I am way out in my calculations. A post on Feb 18th said "Brazil's federal telecoms holding Telebras, which is slated for privatization later this year, is worth up to $58 billion if the values of the 27 subsidiaries that make up the system is considered, according to a report produced by Banco Fator." Gazeta Mercantil So 58B is not that far off from what I first calculated. It seems like a good start to me!