Portugal Telecom, SGPS (ADR) (NYSE:PT)

CAPS Rating: 5 out of 5

The Company provides telecommunications and multimedia services in Portugal and Brazil.

Recs

5
Player Avatar TSIF (99.96) Submitted: 10/9/2011 9:21:45 AM : Outperform Start Price: $6.35 PT Score: -50.79

Portugal Telecom SGPS, S.A . Co is right in the heart of the disruped Eurozone and Mr. Market has written it off as dead. It's a little more difficult for ADR US listings in this current situation, even one that pays a 13% dividend at today's share price. The issues are that part of that could be subject to a foreign tax. They only pay annually in May. No one knows how stable the dividend will be that far out. Historically the price does fluctuate and rise near dividend time. A lot of investors time the dividend, some to sell in advice at the highest share price of that time period and some to get the dividend and lower their acquisition price. So while PT may struggle, there may be an out in May before the next round of sell in May and RUN, RUN, FAR AWAY!!!

Portugal Telecom despite being in the dreaded Eurozone area of Portugal also operates in Brazil. Margins are decent for a telecom and the selloff has them at 1.4 Book. $17 Billion in debt is typical of a telecom, but Portugal Telecom has managed to hold $4 Billion in cash as a serious cushion after selling off one division a year or so ago. Potential problems became more apparent after their last quarterly report indicated that costs had gone up considerably. Revenue and costs BOTH nearly doubled. The 25 stake in Brazilian telecommunications group Tele Norte Leste SA is confusing the data. The increased costs are partially due to upgrades to 4G from 2G and will take some time to absorb. AS a result of hte upgrades Broadband sells are increasing.

Overall a tricky one to value in a tricky economy in a tricky spot in the distressed Euro area. I like their growth potentials, especially in Brazil and at $7 they appear to be priced with a decent enough margin to warrant the risk/reward.

While they have had an erratic share price for years, I'd be looking to try to hold this one, especially if they stabilize before dividend time in May.

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