MASTERS IN FINANCE EQUITY RESEARCH OI S.A. COMPANY REPORT TELECOMMUNICATION SERVICES JANUARY 7, 2015 STUDENT: RICARDO JORGE LUÍS GOMES
[email protected] Future is all about uncertainty Recommendation: BUY Good business prospects, massive leverage Price Target FY15: R$ 19.51 Price (as of Jan. 6, 15) R$ 7.10 . We recommend buying Oi S.A.’s ordinary shares, provided our price target of R$ 19.51 as of December 31, 2015, which Reuters: OIBR3.SA, Bloomberg: OIBR3:BZ underlines an upside potential of 174.78% and represents a 5.78 52-week range (R$) 7.10-48.80 EV-to-EBITDA multiple. However, one should bear in mind the risk Market Cap (R$ mn) 5,984 Outstanding Shares 842,766,135 implied by the small expected participation of equity in the 52-week average daily volume 469,973 company’s enterprise value in 2015 (21.88%). Sources: Analyst estimates; Bloomberg . Selling PT Portugal – which will be decided by PT SGPS’s shareholders on January 12, 2015 – and consolidating in Brazil by acquiring a stake in TIM adds value to the company, as it would allow for a reduction of indebtedness while enjoying from operational synergies. Actually, the target price for this scenario is R$ 19.78, R$ 0.89 above the target price implied by the current scenario, on a standalone basis. We believe Oi S.A. will be able to leverage its wireline Source: Bloomberg footprint in Brazil in the coming years and capture market share in the pay TV segment. However, the debt burden and the possible (1) 2013 2014E 2015F focus on de-leveraging might impair its ability to explore growth Financials Revenues (R$ mn) 36,873 36,937 37,083 opportunities, particularly in a market within a wave of EBITDA (R$ mn) 13,049 10,066 10,272 consolidation.