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PT - Portugal Telecom


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Guest hellsten

I think Portugal Telecom deserves its own thread.

 

PT is now trading at a 52-week low:

https://www.google.com/finance?q=ELI%3APTC

 

PT is a ~6% position in the Bestinver Bolsa fund (http://www.bestinver.com/fondoBolsa.aspx) and Bestinver owns 2% of the company:

http://ir.telecom.pt/InternetResource/PTSite/UK/Canais/Investidores/Pressrel/ComunicadosLegais/2013/PQF21mai13.htm

 

PT was trading between ~6.8€ and ~4.3€ when Bestinver said this about PT:

"Semapa, PT, Sonae and EDP are, from our viewpoint, historic occasions for long-term investments in unusual valuations."

Source http://www.bestinver.com/pdf/trimestrales/bestinfond2011S2_en.pdf

 

Anyone else interested at these levels? I'm planning on initiating a position as soon as I overcome my fear of investing in telecoms :)

 

Other Bestinver holdings also seem cheap, and are possibly a lot cheaper than when Bestinver bought them:

 

Acerinox

 

- 5.45% position in Bestinver Bolsa

- near 52-week low

 

https://www.google.com/finance?q=ELI%3APTC

 

Semapa

 

- 9.08% Bestinver Bolsa holding

- 52-week low 4.72€ and trading at 6.43€

 

http://finance.yahoo.com/q/bc?s=SEM.LS+Basic+Chart&t=5y

 

Brisa, which Bestinver sold in Q4, 2012, is an example of what can happen to any one of these stocks at these levels:

http://www.bloomberg.com/news/2013-03-05/tagus-reluctance-on-brisa-prompts-funds-to-sell-remaining-shares.html

 

I'm not sure, but it looks like Bestinver lost money on Brisa:

http://finance.yahoo.com/q/bc?s=BRI.LS+Basic+Chart&t=5y

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Thanks information hellsten.

 

Think PT is a bit risky for my taste.

Acerinox is interesting but think that Posco is maybe a better bet in that industry.

But if Semapa reaches around 5 euros I will be a buyer.

 

Europe in general looks a bit more interesting for me to look for stocks at the moment so will see what happens :D

 

 

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Guest hellsten

A few other things to consider:

 

- Has a 5-star rating from Morningstar:

http://quotes.morningstar.com/stock/s?t=PT

 

- "Funded until end of 2017":

 

Recently, it issued seven-year debt in the amount of 1 thousand million euros that enabled the company to be "funded until the end of 2017". He said that there was a demand five times higher than the initial offer, which demonstrates the “robustness of the company, its strong governance and above all a regular communication with the market".

Source:

http://www.portugaltelecom.pt/InternetResource/Templates/Print.aspx?GUID=%7BA09E1D50-8BC8-423B-9E10-BB5545B27A4C%7D&LANGUK=True

 

- Recently sold stake in CTM for EUR 330 million:

http://www.reuters.com/finance/stocks/PT/key-developments/article/2779815

 

- Shares decreased from 1260 to 938 million in about 10 years

 

- 60-80% gross margins

 

- Bestinver presentation from March, 2012 lists a target price of 10.8€ (~4 higher than now):

http://www.slideshare.net/JorgeAlarcnArroyo/xi-conferencia-anual-de-inversores-bestinver

 

More from Bestinver's presentation (Google Translation):

- Portugal Portugal Telecom has one of the best infrastructures in Europe

- It has the largest fixed fiber coverage

- The first ones are investing in 4G. With an estimated coverage of one third of the population in 2013

-  And yet ARPU prices are among the lowest in Europe in mobile and fixed telephony

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I would also recommend to analyze Oi (OIBR-C) directly. Oi is one of Portugal Telecom's main assets and has dropped more than 50% the last 4 months. The Brazilian Real has been hit with the tapering thing, and the protests have impacted Brazilian utility stocks the most.

 

Also Portugal Telecom's CEO Zeinal Bava is taking over as new CEO of Oi.

 

http://www.4-traders.com/PORTUGAL-TELECOM-5831/news/Portugal-Telecom-CEO-Bava-Named-CEO-of-Brazil-s-Oi-17001632/

 

http://blogs.barrons.com/emergingmarketsdaily/2013/06/21/oi-sa-falls-5-on-executive-departures/

 

http://en.wikipedia.org/wiki/Oi_(telecommunications)

 

http://en.wikipedia.org/wiki/Zeinal_Bava

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Guest hellsten

I would also recommend to analyze Oi (OIBR-C) directly. Oi is one of Portugal Telecom's mains assets and has dropped more than 50% the last 4 months. The Brazilian Real has been hit with the tapering thing, and the protests have impacted the Brazilian utility stocks the most.

 

Also Portugal Telecom's CEO Zeinal Bava is taking over as new CEO of Oi.

 

http://www.4-traders.com/PORTUGAL-TELECOM-5831/news/Portugal-Telecom-CEO-Bava-Named-CEO-of-Brazil-s-Oi-17001632/

 

http://blogs.barrons.com/emergingmarketsdaily/2013/06/21/oi-sa-falls-5-on-executive-departures/

 

http://en.wikipedia.org/wiki/Oi_(telecommunications)

 

http://en.wikipedia.org/wiki/Zeinal_Bava

 

Thanks. Zeinal Bava has an impressive list of awards:

 

2009: Best CEO in Investor Relations for “Investor Relations & Governance Awards (IRGA)”, an event from Deloitte.[7]

2010: Best CEO in european telecommunications sector, from Institutional Investor. Best CEO in Portugal from Extel[8]

2011: Second best CEO in european telecommunications sector and best CEO in Portugal, pela Institutional Investor.[9]

2012: Best CEO in Portugal and best CEO in european telecommunications sector, from Institutional Investor.[10]

 

Good management in a bad business… A bit like Fiat and Sergio Marchionne.

 

Warren Buffett on the telecom industry:

Telecom is not a business I understand very well. I have no insights

into that business. It's always struck me as a very competitive

commodity-type business, capital intensive. It's just not a game

where I have any kind of any interest at all. I'd rather sell candy

or something of the sort, where you can understand the competitive

advantage. But I don't like businesses that are going to change a

lot. I like Gillette, you know a hundred years ago almost, they were

the dumb regular blade. Like value, they sell over 70 percent of the

blades to the rest of the world, in the world—70 percent. Everybody

knows how to make them; they don't have to steal the technology; they

don't have to distribute them. But here's a company that has 70

percent overtime. So it's a great, great business. It will dominate

10 years from now. Dominate 20 years from now.

Source http://www.rbcpa.com/WEB_omaha1992.html

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Guest hellsten

Why are you afraid of telecoms?

 

Warren's words about the telecom industry and, for example, this essay:

"Fundamental instability: Why telecom is becoming a cyclical and oligopolistic industry"

http://www.citi.columbia.edu/elinoam/articles/cyclicality.pdf

 

Yet the causes of the telecom industry’s recent volatility are not random but fundamental, structural, and inherent, and will remain so for the foreseeable future. They are the basic economic characteristics of many network industries: very high fixed cost, very low

marginal cost, inelastic demand, lags in supply, network externalities, and technological

uncertainties – all of which encourage firms to seek market share to gain economies of scale

on the supply side and network effects on the demand side. This expansion makes sense for

the individual firm; but in the aggregate, it leads to a major oversupply. Competition then

drives prices down towards marginal cost and to levels which do not support total cost.

Eventually, demand catches up with supply, prices rise, new entrants emerge, supply

expands, and then overexpands. A new cycle emerges, part of the dynamics of a ‘‘fundamental instability’’ in the telecom sector.

 

Gamco writes about regulatory issues in e.g. the US, Europe, and Mexico:

http://www.gabelli.com/Gab_pdf/q_com/401.pdf

 

Telecoms are hated, so that's one thing to like about them.

 

according to a recent survey by Bank of America of sell-side analysts, the sector holding the least appeal at present is telecoms.

http://www.schroders.com/tvp/archive?id=Defensive%20line

 

Even consumers hate them. I hate mine too :):

http://www.rcrwireless.com/austin/20110713/carriers/the-19-most-hated-companies-include-several-telecoms/

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The case study: A better price for an asset

By Nuno Fernandes

http://www.ft.com/cms/s/0/d417881c-f901-11e1-8d92-00144feabdc0.html#ixzz2X5oKBllF

 

The challenge. Zeinal Bava, chief executive of PT, had to decide what would be best for his shareholders. The easy option would be to accept Telefónica’s bid, due to the hefty premium. However, Vivo was PT’s prize asset, accounting for a significant proportion of revenue and most of its growth.

 

Rejecting the offer from its bigger partner in the hope of extracting a higher price was risky, including the danger that it could harm PT’s credibility with investors.

 

More background:

http://www.telecoms.com/20944/portugal-telecom-and-telefonica-haggle-over-brazil/

http://www.economist.com/blogs/newsbook/2010/07/telef%C3%B3nica_finally_gets_brazils_vivo

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Fending off Sonaecom's €11.8bn Hostile Bid in 2007

http://www.telecoms.com/6822/sonaecom-gives-up-on-portugal-telecom/

 

The Portuguese incumbent had said it would distribute some Eur6.2bn to shareholders over the next three years through dividends and a share buyback programme if they voted against the takeover.

 

Slim buys small stake in the chaos

http://www.cellular-news.com/story/18791.php

http://in.reuters.com/article/2009/04/21/telmex-portugaltelecom-idINLL8640620090421

 

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Thanks guys, this is an interesting idea, definitely worth looking into.

 

 

I am very, very new to this idea but this seems like the new CEO is just cleaning house.

 

Sounds like Bava has his hands full..

 

Oi is spending about 6 billion reais this year on infrastructure improvements, the most among peers, to better satisfy customers after getting more complaints from Brazilians than any other phone company. Even with those expenses, new Chief Executive Officer Zeinal Bava faces pressure to supply a steady stream of cash to Oi’s controlling shareholders so they can pay off their own debt.

 

“They keep sucking and sucking the company dry,” said Eduardo Roche, head of equities at Rio de Janeiro-based Modal Asset Management, which manages 600 million reais. “The dividend isn’t necessary -- it’s necessary for the controller. For investors, it’s more interesting for the company to create value.”

..

The company is insisting on paying dividends and not doing more to strengthen its liquidity, said Gustavo Serra, an analyst at Planner Corretora de Valores SA whose rating for Oi is under review. Even if it gets below 3, Oi’s ratio of net debt to earnings would far surpass the average of Latin American telecommunications companies, which is less than 1, according to data compiled by Bloomberg.

..

Oi’s controlling group, known as TmarPart, has about 3.5 billion reais in debt and paid 355 million in financial costs last year -- almost exactly the amount it receives in dividend payments from Oi, according to an Itau BBA SA note last month.

 

http://www.bloomberg.com/news/2013-06-20/oi-s-industry-best-dividend-yield-in-jeopardy-corporate-brazil.html

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Conference Call Q1 2013

http://seekingalpha.com/article/1387031-oi-sa-management-discusses-q1-2013-results-earnings-call-transcript

 

Jonathan Dann - Barclays Capital, Research Division

Are the tower sales, non-core asset sales on track?

 

Alex Waldemar Zornig - Chief Financial Officer and Investor Relations Officer

We just filed the 20-F on the SEC today. And there, you will see a subsequent event, which states that we sold rights of use of 4,000 fixed line towers, because we -- as a recession -- a concession, sorry, we cannot sell fixed towers because it doesn't belong to us. But we can sell the right of use, explore the fixed towers, okay? And, yes, we sold that in April, 4,000. And the money, which is around BRL 1 billion, is coming in the next 2 months -- the following 2 months after March 13.

 

Kartik Nehru - Emerging Sovereign Group, LLC

I just had a quick question on, outside of the fixed towers, which we saw on your 20-F, are there other -- I understand you're still selling real estate assets, but are there other mobile towers that you could still monetize? That's my first question. And the second question has to do with what exactly is your maintenance CapEx? And after you get through your current CapEx plan and spending about BRL 6 billion a year for the next few years, when do you think you're going to be free cash flow positive?

 

Alex Waldemar Zornig - Chief Financial Officer and Investor Relations Officer

All right. Okay. Yes, we do have mobile towers. We have lots of mobile towers, more than 6,000 towers, okay? And just to make clear, there was, what I just mentioned, our fixed line towers, nothing to do with mobile, okay? Yes, I have other assets to sell. And it's going to be occurring along the next quarters. Your question regarding the maintenance, CapEx maintenance represents today 10% of our total CapEx, so roughly BRL 600 million. And your last question was?

 

Kartik Nehru - Emerging Sovereign Group, LLC

Just when are you going to be free cash flow positive?

 

Alex Waldemar Zornig - Chief Financial Officer and Investor Relations Officer

Free cash flow positive. This company with this CapEx and with the capital structure we have, we believe that when we reach BRL 11 billion, BRL 11.5 billion, BRL 12 billion EBITDA, we are going to be positive cash flow. Where and when we intend to reach this -- that number, that corresponds [ph] with our strategic plan, by 2015.

 

Josephine Shea

I wanted to ask whether you have any financing needs going forward and whether you might go and access the capital market?

 

Alex Waldemar Zornig - Chief Financial Officer and Investor Relations Officer

Josephine, if we do need financing, well, in terms -- if you look at our press release, you see that we don't have liquidity issues. This year, we have BRL 2.3 billion of loans that are due -- of debt, not loans, debt that are due. We don't -- so far, the banks are very willing to renew it. They don't want us to pay them, but there's some managing of asset and liability management of us. So basically, no, we don't need further financing because, as I explained to your colleague before, we have a lot of non-core assets that we can sell and make cash that can replace any financing necessity. So the following, if you -- Oi, for example, financing necessity in the next quarters, will be to or expand the tenures of our debt or to replace something that are due today in order to lengthen the tenures as well.

 

Josephine Shea

And your dividend policy, that will remain the same in case you do need -- your costs are higher and your free cash flow is lower than expected?

 

Alex Waldemar Zornig - Chief Financial Officer and Investor Relations Officer

My dividend policy is unchanged as long as we keep the 3x net debt-to-EBITDA.

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A few comments on the dividend. This is the current dividend plan according to the investor day presentation after the acquisition.

 

http://farm8.staticflickr.com/7304/9119086851_f535d978eb.jpg

 

So it wasn't like they thought the current level was sustainable. The dividends were more about monetizing non-core assets (towers and real estate) while keeping a similar Debt/EBITDA to the one they have in Europe.

 

The concern is that 3x Debt/EBITDA is much higher than Brazilian and European peers.

 

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/pt-portugal-telecom/msg121376/#msg121376

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Oi 20-F

 

http://www.sec.gov/Archives/edgar/data/1160846/000119312513187787/0001193125-13-187787-index.htm

 

The principal trading market for our common shares and preferred shares is the BM&FBOVESPA, where they are traded under the symbols “OIBR3” and “OIBR4,” respectively. Our common shares and preferred shares began trading on the BM&FBOVESPA on July 10, 1992. On November 16, 2001, our Preferred ADSs began trading on the NYSE under the symbol “BTM.” On November 17, 2009, our Common ADSs began trading on NYSE under the symbol “BTMC.” On April 9, 2012, the trading symbols for our Preferred ADSs and Common ADSs on the NYSE were changed to “OIBR” and “OIBR.C,” respectively.

 

We have registered our Common ADSs and Preferred ADSs with the SEC pursuant to the Exchange Act. On December 31, 2012, there were 20,146,838 Common ADSs outstanding, representing 20,146,838 common shares, or 3.9% of our outstanding common shares and 168,504,287 Preferred ADSs outstanding, representing 168,504,287 preferred shares, or 15.0% of our outstanding preferred shares.

As of April 25, 2013, we had outstanding share capital of R$7,471,208,836.63, equal to 1,797,086,404 total shares, consisting of 599,008,629 issued common shares and 1,198,077,775 issued preferred shares, including 84,250,695 common shares and 72,808,066 preferred shares held in treasury. All of our outstanding share capital is fully paid. All of our shares are without par value. Under the Brazilian Corporation Law, the aggregate number of our non-voting and limited voting preferred shares may not exceed two-thirds of our total outstanding share capital.

 

Each of our common shares entitles its holder to one vote at our annual and extraordinary shareholders’ meetings. Holders of our common shares are not entitled to any preference in respect of our dividends or other distributions or otherwise in case of our liquidation.

 

Our preferred shares are non-voting, except in limited circumstances, and do not have priority over our common shares in the case of our liquidation. See “—Voting Rights” for information regarding the voting rights of our preferred shares and “Item 8. Financial Information—Dividends and Dividend Policy—Calculation of Adjusted Net Profit” and “—Dividend Preference of Preferred Shares” for information regarding the distribution preferences of our preferred shares.

 

Under our by-laws, our preferred shareholders are entitled to a minimum annual non-cumulative preferential dividend, or the Minimum Preferred Dividend, equal to the greater of (1) 6.0% per year of our share capital divided by our total number of shares, or (2) 3.0% per year of the book value of our shareholders’ equity divided by our total number of shares, before dividends may be paid to our common shareholders. Distributions of dividends in any year are made:

 

first, to the holders of preferred shares, up to the amount of the Minimum Preferred Dividend for such year;

• then, to the holders of common shares, until the amount distributed in respect of each common share is equal to the amount distributed in respect of each preferred share; and

• thereafter, to the common and preferred shareholders on a pro rata basis.

 

If the Minimum Preferred Dividend is not paid for a period of three years, holders of preferred shares shall be entitled to full voting rights.

 

http://farm6.staticflickr.com/5460/9186235259_70e29fecf1_c.jpg

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PlanMaestro, Thanks for this info. If ADR's fall below $1 do they have to follow the NYSE delisting guidelines.

Do you know what happens? will we get Brazilian shares for the same ? I know its hypothetical but trying to assess worst case scenario.

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So Plan tell me. How do you get all those brokerage reports? UBS, Barclays, Goldman.....

 

I just use TD Ameritrade and Schwab to execute my orders so I don't have much of a network to pull down research reports. Is there perhaps something I'm missing? Maybe an easy way to access more reports from various institutions? Just curious. Thanks.

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just an amateur expending too much time using google seeing what hits that advanced search *.pdf. Tried Merrill, Morgan, Booz, BCG, Bain, McKinsey … no luck there. Hope it helps, and if others find other reports …

 

PS: sorry locatevalue, I don't know.

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Guest hellsten

Blood on the streets in Portugal, not just Brazil:

http://online.wsj.com/article/SB10001424127887323899704578582931660976470.html

 

Portuguese bonds and stocks led heavy declines in European markets Wednesday after Foreign Minister Paulo Portas resigned, triggering the worst political crisis since Portugal accepted an international bailout two years ago.

 

"The political problems increase the uncertainty surrounding Portugal's bailout commitments and potentially even the prospect for negotiations of a precautionary program succeeding the current program running out in May next year," RBC said in a note to clients. "We see the risk of further spillover effects into Spanish bonds and Italian bonds hampering the recent recovery."

 

http://www.bloomberg.com/news/2013-07-03/portugal-s-psi-20-index-declines-most-since-october-2008.html

 

Portuguese stocks tumbled the most since October 2008, after the leader of the second-largest party in the country’s coalition resigned, undermining the government’s ability to conduct business.

 

Perhaps the perfect time to buy PT? Time will tell.

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The CEO of OIBR and previously PT has done a great job stabilizing and growing EBITDA in 6 years of austerity and the forced spin off of PT's cable company.  Just compare the EBITDA levels of PT to FTE, KPN or Telecom Italia and you can see the difference.  You have a leader forged in adversity that is now going to Brazil to turn around Oi.  PT has a large stake in Oi and sees it as their growth engine.

 

Packer

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The CEO of OIBR and previously PT has done a great job stabilizing and growing EBITDA in 6 years of austerity and the forced spin off of PT's cable company.  Just compare the EBITDA levels of PT to FTE, KPN or Telecom Italia and you can see the difference.  You have a leader forged in adversity that is now going to Brazil to turn around Oi.  PT has a large stake in Oi and sees it as their growth engine.

 

Packer

 

When you say the EBITDA levels, could you tell me what you mean? Is that EBITDA margin?

How would you rank PT's CEO against other telecom companies in terms of turning around the company and crisis management?

What could go wrong that would kill PT?

Thank you in advance for your comments! :)

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