Reiterating his bullish case for Brasil Telecom Participações S.A. (BRP), Zacks senior Latin American markets analyst Claudio Freitas, CFA explains why investors should put their money on the telecom major:
'We are keeping our current Buy recommendation on Brasil Telecom Participações S.A. The company posted better-than-expected results in the first three quarters of 2007, and the short-term outlook remains positive. The company also has solid cash flow, decent operating margins in the wire-line business, and an attractive valuation.
'Additionally, the growth in the wireless and the broadband segments are encouraging and should continue in future quarters. We believe the possibility of a merger between Brazil Telecom and Telemar (TNE) is just a matter of time. BRP is trading at 16.7x our 2007 EPS estimate, below the industry mean and median, and an enterprise value to EBITDA (a more common valuation metric for the telecom industry) of just 2.8x our 2007 estimate.
'In fact, the EV/EBITDA multiple went down this quarter due to the considerable fall in the company's net debt. The EV/2007 EBITDA valuation remains below the industry mean, and is close to the low point of the historical range of 3.0x to 6.0x for most of the Latin American telecom operators. BRP is also trading at just 0.9x its price/sales ratio, well below the industry mean and also below other Brazilian telecom operators. We think the stock is trading at a highly attractive valuation.
'Additionally, the company posted very good results for the fourth quarter 2006, first quarter 2007, second quarter 2007 and third quarter 2007 the short-term outlook seems promising, mainly considering the recent news regarding a possible merger with TNE. Our target price is US$92.50, which is based on an EV/2007 estimated EBITDA of 3.5x, close to the current valuation of Telemar. All considered, we are maintaining our current Buy recommendation.'
Read the full analyst report on BRP.
Read the full analyst report on TNE.
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