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Published by Raymond James Latin America
Telecom Argentina S.A.
(TEO:NYSE) (TECO2.AR:Argentina BUE)
RJ Latam, (5411) 4850-2534, Federico.Chapto@RaymondJames.com.ar
April 27, 2012 Company Note
Rating_________________________________ Outperform 2 Current Price (26/04/2012) US$14,68 Target Price: US$27,00 52-Week Range US$26,90 - US$13,89 Suitability Growth Market Data__________________________ Shares Out. (mil.) 196,9 Market Cap. (mil.) US$2.890 Avg. Daily Vol. (10 day) 717.300 Dividend/Yield US$2,03/13,8% Book Value (09/11) US$8,68 ROE % 0% Net Debt (mil.)/% Cap. -US$482/NM
Telecommunications Services___________________________________ Current and Target Price____________
Telecom Arg. Announced a Cash Dividend of US$180 million (US$0.92/ADR)
Event: TEO announced a cash dividend of AR$807 million (US$180 million, US$0.92/ADR), to be paid on May 10, 2012, implying a 6.1% dividend yield as of Friday´s closing price. Besides, the company also stated that capex is expected to be ~US$1 billion in 2012. Analysis:
Unleveraged balance sheet and robust free cash flow generation should allow for a higher dividend payout going forward, in our view. Cash dividends to be disbursed imply equate Earnings & Valuation Metrics_______ to ~30% of earning generated in 2011, showing a lower payout ratio 2010A 2011E 2012E2013E compared that of 2010 and 2009, when TEO distributed ~50% and EPADS 75% of profits, respectively. Despite of the dividend cut, we believe US$2,36 US$2,98US$3,25 that a dividend payout in excess of 50% should be sustainable going US$3,71 forward, mainly for two reasons: 1) TEO had a cash position of US$665 million (US$624 million net cash) as of December 2011, 2) we expect P/E 6,0x 4,0x 4,0x 3,0x free cash flow generation to remain strong in the coming years. EBITDA (mil.) Improved visibility on dividend policy could help to bridge the US$1.163US$1.361US$1.424 valuation gap. TEO is trading at 1.8x EV/EBITDA and 4.6 P/E for US$1.581 2012 , implying a steep discount compared to Latam peers, which EV/EBITDA trade, in average, at ~5x EV/EBITDA and ~13x P/E for that same year. 2,2x 1,9x 1,8x 1,6x While the higher sovereign spread could explain a big portion of this discount, we believe that improved visibility regarding future dividend Company Description________________ payments could help, to some extent, to bridge the valuation gap. Telecom Argentina is one of the main Capex to reach ~US$1 billion in 2012, up ~30% y/y in dollar terms. Management stated that capex is forecasted to be ~US$1 billion for 2012, put of which ~US$120 million should be allocated to the auction of new spectrum capacity (expected to take place over the next couple of months). Management´s solid track record allows for assuming that incremental capex will achieve value creation. Positive outlook despite of already-high penetration. Management also stated that despite that penetration of mobilephone services is already high across the country, they remain positive on the possibility of maintaining healthy top-line growth in the next couple of years. Value added services, wireless internet access and data services are expected to be the main growth drivers.
integrated players in Argentina. It has a non-expiring license to provide fixed-line telecommunications services in Argentina. Through Personal, a fully owned subsidiary, it provides mobile services. It also renders other telephone-related services such as broadband, data transmission, international long-distance service and IT solutions. Through Nucleo, an international subsidiary, it provides mobile services in Paraguay.
1Q12 Results to be released on May 4. Telecom Argentina will release 1Q12 results on May 4, under IFRS for the first time. Management will host a conference call on that same date. Conference call details: USA 1-888-359-3610; Outside USA 1-719-325-2234. Net/net: Despite not the optimal scenario for investors, as we believe that TEO´s unleveraged balance sheet and robust free cash flow generation should allow the company to maintain a dividend payout ratio
© 2012 Raymond James Latin America. All rights reserved.
Raymond James Latin America | Ruta 8, km 17.500 | 91600 Montevideo | Uruguay | 00598 2 518 2033
LatAm Research in excess of 50%. © 2012 Raymond James Latin America. All rights reserved. as reflected by the ~3% intraday hike in stock prices following this announcement.500 | 91600 Montevideo | Uruguay | 00598 2 518 2033 . 2 Raymond James Latin America | Ruta 8.A. the dividend announced (~30% payout) was slightly above the market´s expectations. km 17.Telecom Argentina S.