Pick Up Brasil Telecom

Tags: brp, tne
18 Jan 12:18am
Posted by ZacksResearch
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Zacks senior Latin American markets analyst Claudio Freitas, CFA has maintained his bullish opinion and advised investors to Buy shares of Brasil Telecom Participações S.A. (BRP), 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. The news on the merger with Telemar (TNE) was not well received by the market, but we still believe it will be very positive for both companies.

'BRP is trading at 15.2x our 2008 EPS estimate, below the industry mean and in line with the industry median and an enterprise value (EV) to EBITDA (a more common valuation metric for the telecom industry) of just 2.7x our 2008 estimate. The EV/2008 EBITDA valuation remains below the industry mean, and is close to the low point of the historical range of 3x to 6x for most of the wire-line Latin American telecom operators.

'Additionally, BRP is 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. Moreover, the company posted very good results for the fourth quarter 2006, first, second and third quarters 2007, and the short-term outlook seems promising.

'All considered, we are keeping our current Buy recommendation. Our target price is US$92.50, based on an EV/2007 estimated EBITDA of 3.5x, close to the current valuation of Telemar (Telenorte ADR).'

Read the full analyst report on BRP.

Read the full analyst report on TNE.




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