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

To: Steve Fancy who wrote (6336)	8/5/1998 1:22:00 PM
From: DMaA	Read Replies (1) \| Respond to of 22640

Obviously this guy gets all his information from Dan Rather. Administration-wide they're dropping like flies. And the campaign finance prosecuter hasn't even begun. The nature of the Starr investigation of President Clinton does not suggest an Administration-wide scandal, however, so the policy instability that would cause investors overseas to disgorge dollar assets does not appear to be present.

To: Steve Fancy who wrote (6336)	8/5/1998 1:55:00 PM
From: Steve Fancy	Respond to of 22640

From Bear Stearns dated 08/03, Thanks to the contributor! sf ============================= Telebras: ON & PN Target Prices for 12 Holding Companies Given the lower liquidity of the ON shares of Telebras' 12 new holding companies compared to the PNs, we expect the ON's to trade at a discount, which we estimate may vary from 20% to 35%, depending on the liquidity of each stock. We have estimated the discounts for the ON sahres of these companies based on historical discount between Telebras ON and PN shares, which was in the range of 10%. With the breakup of Telebras, capitalization of the underlying companies should vary from approximately $500mm to $13,000mm, compared $40,379mm for Telebras as of last Friday, and we expect the liquidity of these companies to be lower than that of Telebras in a similiar proportion. Concomitantly, ON/PN discount for these companies should be larger than that of Telebras. Observing the relative liquidity of these shares we have assigned different ON/PN discounts to these companies beginning with 20% in the case of Telesp and Telenor Wireline (which should be the most liquid of the 12 companies), 25% to Telecentro-Sul Wireline and Embratel and ranging from 25% to 35% for cellular companies. Again, the lower the liquidity, the higher the discount. Company Year End 1998 Wtg. Avg PN ON Discount ==================================================================== Telesp Wireline 30 31 26 20% Telenor Wireline 38 41 34 20% Telecentro-Sul Wireline 19 20 16 25% Embratel 11 12 10 25% --------------------------------------------------------------------- Total Wireline & LD 98 105 86 22% Telesp Cellular 9.9 10.7 8.5 25% Telesudeste Cellular 5.2 5.7 4.4 30% Telemig Cellular 5.0 5.4 4.2 30% Telesul Celular 2.3% 2.5 1.9 35% TeleCentro Cellular 4.7 5.1 3.9 30% TeleNorte Cellular 1.7 1.9 1.4 35% TeleLeste Celular 1.6 1.8 1.3 35% TeleNordeste Cellular 1.9 2.1 1.6 35% --------------------------------------------------------------------- Total Cellular 32 35 27 30% Break-up Value 130 140 113 23% Company Year End 1999 Wtg. Avg PN ON Discount ==================================================================== Telesp Wireline 35 37 31 20% Telenor Wireline 45 48 40 20% Telecentro-Sul Wireline 23 25 20 25% Embratel 15 17 13 25% --------------------------------------------------------------------- Total Wireline & LD 118 126 104 22% Telesp Cellular 12.8 13.8 11.1 25% Telesudeste Cellular 5.8 6.3 4.9 30% Telemig Cellular 5.6 6.1 4.7 30% Telesul Celular 2.6% 2.8 2.2 30% TeleCentro Cellular 5.0 5.5 4.2 30% TeleNorte Cellular 2.0 2.2 1.6 35% TeleLeste Celular 1.9 2.1 1.5 35% TeleNordeste Cellular 2.1 2.3 1.8 30% --------------------------------------------------------------------- Total Cellular 38 41 32 29% Break-up Value 156 168 136 23% Additionally, based on the quality of the international telecommunications operators who have acquired the cellular companies and higher premium paid by them in the recent auction, we decided to become more optimistic with regard to the longer term growth prospects of these companies. In turn we have increased our longer term free cash flow estimates (terminal value) for the cellular companies from approx. 5% to 6.5%. This change by itself increases the forecasted values of these companies as reflected in their suggested ON and PN share valutions. Our suggested valuations of these companies is based on the same number of shares as Telebras, 210.2 million PN shares and 124.2 million ON shares, totaling 334.4 million shares. Company Year End 1998 '99 '99 '99 PV/Share FV.EBTDA Price/CE P/E ==================================================================== Telesp Wireline $31 6.1 6.6 7.8 Telenor Wireline $20 5.8 6.4 15.0 Telecentro-Sul Wireline $41 6.0 6.7 14.5 Embratel $12 5.7 6.0 39.2% --------------------------------------------------------------------- Avg Value Filed + LD $105 5.9 6.4 19.1 --------------------------------------------------------------------- '99 5-Yr PV/Share FV.EBTDA FV/Pop Growth (%) --------------------------------------------------------------------- Telesp Cellular $10.7 5.7 116 2.0% Telesudeste Cellular $ 5.7 5.4 109 -0.4% Telemig Cellular $ 5.4 9.6 108 10.7% Telesul Celular $ 2.5 6.4 58 2.9% TeleCentro Cellular $ 5.1 7.5 119 3.0% TeleNorte Cellular $ 1.9 7.7 44 7.5% TeleLeste Celular $ 1.8 5.9 45 4.0% TeleNordeste Cellular $ 2.1 5.7 28 0.5% --------------------------------------------------------------------- Average 6.7 78.4 4% --------------------------------------------------------------------- Value Cellular $35 Value 12 Co's $140 Company Year End 1999 '00 '00 '00 PV/Share FV.EBTDA Price/CE P/E ==================================================================== Telesp Wireline $37 6.4 6.8 16.5 Telenor Wireline $25 6.2 6.9 16.1 Telecentro-Sul Wireline $48 6.3 6.9 15.2 Embratel $17 7.6 7.5 48.7 --------------------------------------------------------------------- Avg Value Filed + LD $126 6.6 7.0 24.1 --------------------------------------------------------------------- '99 5-Yr PV/Share FV.EBTDA FV/Pop Growth (%) --------------------------------------------------------------------- Telesp Cellular $13.8 6.0 148 3.0% Telesudeste Cellular $ 6.3 5.8 119 -1.0% Telemig Cellular $ 6.1 7.9 120 8.8% Telesul Celular $ 2.8 5.8 64 2.6% TeleCentro Cellular $ 5.5 7.9 127 5.4% TeleNorte Cellular $ 2.2 7.2 49 9.0% TeleLeste Celular $ 2.1 6.0 51 5.5% TeleNordeste Cellular $ 2.3 6.1 30 4.1% --------------------------------------------------------------------- Average 6.6 88.6 5% --------------------------------------------------------------------- Value Cellular $41 Value 12 Co's $168