03/07/2007


Is it a good business to invest in Telecom Enterprises's shares ?

 

The stock market was a great investment in the 1st semester in Brazil. The shares of IBOVESPA ( São Paulo Stock Exchange) had presented an income of 22% accumulated from the first 6 months of the year. ITEL, composed by shares of telecommunication companies earned 18.2%.

 

To open capital in the Stock Exchange and invest in shares of Telecom companies in Brazil has been a good business deal ?

 

The following table presents the market cap of the main telecom operators in the world, as well as EBITDA. The Market Cap is the add up of shares emitted for negociation in the stock market of this company.

 

US$ Billions
Market Cap/EBITDA
Market Cap
Enterprise Value (EV)
ATT
9.0
256
316
China Mobile
10.1
216
200
Vodafone
6.1
177
208
Verizon
4.0
119
151
América Móvil
12.6
109
117
Telefonica
4.5
107
179

Source: Yahoo Finance jun/06

 

The table also presents Enterprise Value EV (Enterprise value or Firm Value).

 

In Brazil, the main telecommunication operators (Telemar, BrT, Telesp, Vivo and Tim) have shares negotiated in stock exchange and composes the Telecommunication Sectorial Index (ITEL) which measures the behavior of telecom enterprises' shares in São Paulo Stock Exchange (BOVESPA).

 

Itel, established in 1999, had a bad period untill 2006. In 2007 exceeded 1,100 points, which didn't happen since 2000. Finished jun/07 in 1,245 points.

 

 

América Móvil/Telmex group don't participate of Bovespa. Claro is an enterprise of closed capital in Brazil and Embratel is closing its capital. Except Net, the company in which mexican group have minority participation. Multiple raised (12.6) between Market Cap/EBITDA gotten by América Móvil in the Stock Exchange of Mexico and New York helps to explain this preference.

 

The following figure presents market cap evolution of the main Telecom companies in Brazil in the last 12 months. Net was joined to the graphic although Bovespa doesn't classifies it in the telecommunication segment.

 

Note: The companies are: Telesp, Tele Norte Leste Participações (Telemar), Tim Participações, Vivo Participações, Brasil Ttelecom Participações and Net.

 

Net, BrT and Vivo present the biggest growth of amrket cap in the last 12 months.

 

Jun/07
Market Cap / EBITDA*
Market Cap
(R$ Billions)
Monthly Growth
Growth 12 months
Telesp
4.5
31.0
8.3%
44.2%
Telemar
3.2
19.7
3.7%
31.7%
Tim
7.5
18.8
-2.8%
20.7%
Vivo
6.5
16.9
1.5%
71.3%
BrT
3.6
12.7
4.7%
78.8%
Net
17.9
9.2
1.4%
94.4%
Total
4.9
108.2
3.3%
45.9%

* Market Cap (Jun/06)/EBITDA (2006)

 

Analysing these informations it's possible to affirm:

  • Net leads with a multiple (Market Cap/EBITDA) of 17.,9.
  • Cellulars (Tim and Vivo) are in a second group with multiples order 7.
  • The companies of Fixed Telephony have less multiples between operators. Telefônica has a bigger multiple (4.5) than Telemar and BrT (order 3.5).
  • Net, BrT and Vivo present bigger market cap growth in the last 12 months.

Telemar considered in 2006 a shareholding reorganization which would increase market cap improving its level. This reorganization, which foresaw the end of preferential shares (without vote rights), ended being rejected by these shareholders, which didn't accept the proposal.

 

In 2007, Telemar did a public offer to que acquisition of three preferential shares offering R$ 35,09 to Telemar preferential shares (Tele Norte Leste). These shares finished June with R$ 37,00 better than Telemar' offer.

 

Beyond these companies, there are companies with shares negotiated in Bovespa: GVT, Telemig Celular and Amazônia Celular

 

R$ Billions
Market Cap
VM/EBITDA*
GVT
4.3
16.8
Telemig Part
2.5
7.2
Tele Norte Celular
0.2
6.6

*relation between market cap and EBITDA (2006).

 

GVT started in Bovespa on feb/07 anmd reached a market cap of 4.3 billions in Jun/07 with 66% valuation since February this year.

 

The market cap of the main telecommunication operators in Brazil presented valuation between 21% to 94% in the last 12 months. In average, the investment presented a good feedback for those which invested in these operators shares. That doesn't mean, however, that all kinds of shares had the same valuation or this situation must last few time.

 

You could ask:

  • Why multiples in Brazil (Bovespa) are below other international companies?
  • Why Telemar and BrT present Market Cap/EBITDA less than others?
  • how would be Oi?

Comment.

 

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