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We are keeping our current Buy recommendation on Brasil Telecom Participações S.A. (BRP). The company posted better-than-expected results in each quarter of 2007, and the short-term outlook remains positive.
The company also has solid cash flow, decent operating margins in the wireline 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 positive for both companies. We think the stock is trading at a highly attractive valuation.
In fact, we believe the Telemar deal is great news for Brasil Telecom. All considered, we are keeping our current Buy recommendation. Our target price is US$96.75, which is based on an EV/2008 estimated EBITDA of 3.5x, close to the industry mean.
Read the analyst note on BRP.
Read the analyst note on TNE.
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