Tele Norte Leste Participacoes SA (ADR) (TNE)

Rise will continue after correction is over.

Landline, broadband, and wireless in a growing market. Second largest wireless service in Brazil. As a Brazilian company, it has a home field advantage against the likes of VIV (a subsidiary of AMX), PT, TI, and TEF. Great dividends.

Considering Book value, earnings, and market cap...this should beat the market in 5 years.

Graham formula gives me a fair value of $29 when using current numbers (earnings of $2.67 and book value of $14.01). When using pessimistic earning of $1.55, I still get a fair value of $22. That's a margin of safety between 25 and 40%.

The company also pays out a nice (if variable) dividend. I am increasing my timeframe for the stock.

morningstar screen

Telemar’s (TNE) acquisition of Brasil Telecom (BRP) remains the main trigger for both stocks. TNE’s management remains confident that the deal will go through on time. Even if this is not the case, we believe that the R$490mn fine could be renegotiated, since both parties appear to be very enthusiastic to see the deal closed.

Outlook

As an integrated telecom operator offering fixed telephony, mobile services, broadband connection and internet services, TNE could benefit from upcoming regulatory changes that would favor the wireline companies in Brazil, including the offer of triple (and quadruple) play services and potential mergers in the sector. Prospects of consolidation added to an attractive valuation support our Buy recommendation.

Valuation

We assume 3% growth for the mobile business, in line with Brazil's long-term GDP growth. We also assume 1% growth for the wireline business, as it grows at slower pace than the mobile. Our 1.6% assumption is an average weighted by EBITDA contribution (from each of these businesses) by 2015

Risk

The main risks we see for TNE are: 1) regulatory changes, including minimum targets and methodology for tariff increase; 2) increasing competition, not only from mobile operators, but also from new technologies (squeezing margins); 3) deterioration of macro-economic conditions, with a negative impact on consumption of telecom services; 4) restructuring risk, as TNE has a complex capital structure with different classes of shares.

Brazil seems to be a good market to be in rt. now. With the rule change in telecomunications, this co. is going to spread out some. It may find stiffer competition in line phones, But being home grown might give it a slight advantage.

Brazilian telecom still looks to have strong growth at a fraction of the price.

Awesome!

Goverment love in a ultra growing economy. Long term profit potential. Undervalued relative to profit and long term potential. Cons,stiff competitors and a slowing global economy. Long term story is compelling enough for me.

O/U 72

Very impressive growth, solid fundamentals and cash flow, just made an acquisition that should lead to higher market share in existing markets. Trading at a discount to its peers when considering Price/Book, P/E, Forward P/E, and PEG.

The price today reflects the current issues that TNE is dealing with in reorganizing the company to take advantage of new laws allowing for expansion. I don't feel this price has any future outlook baked into at all which to me means it's undervalued.

The Telco industry in Brazil has 3 dominant players and two are from other countries. There is risk in long term ownership due to these larger competitors however I feel the short term (52w) outlook is very strong and they are at a low point for this year. The other players in this market have a solid track record of success and strong management. They also have experience in international markets which TNE does not yet have. TNE would like to expand into other markets and must bolster its executive management team with those in the know.

Overall I don't think it would be unrealistic to see TNE hit $30.

FPE strategy.

Anatel (Brazilian agency of telecommunications) recently (june 13th) changed brazilian law allowing fixed line telecom companies (82% of TNEs bidness) to operate in more than one region in Brazil. The decescion now has to go "before the Communications Ministry which will allow for 30 days of public consultations on the proposed changes before being presented to President Luiz Inacio Lula da Silva for approval." -from an ap article. Lula, unless he's changed his mind, is for this change. The reason this is important is it allows Oi's aquisition of Brazil Telecom to go through. This better position's TNE to compete with the likes of Telefonica SA out of Spain and Mexicos' American Movil. The combined company would control about 17% of Brazil's cell phone market. Cell phone pentration in Brazil has lagged behind some of its regional neighbors, which just means it has more room to grow, and it is, fast. Tele Norte has also said they plan on becoming a regional South American player by adding 30 million clients outside of Brazil in the next 5 years.

There is a downside to the ruling in that Anatel has said that Oi must split it's broadband services off into a seperate company. Still I expect Lula to rubber stamp this next month and TNE to grow at a nice steady clip after that.

Full disclosure: I am a holder of TNE ADRs.

Go Brazil.

They are buying another company and they will be one of the two main service providers.

Need to wait out it's expensive buyout tofilter thru the books
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In third world countries, most telecom companies get it right with their business model - in looking for companies with growth, you should not dismiss non-us companies like TNE.