TSU Brazilian mobile phone service provider

**alex_li_98** Tue Jan 31, 2006 2:36 am

TSU Brazilian mobile phone service provider
I definately understand that for international ADRs we have less visibility into their real finance. However as good US value stocks are getting harder to find, I feel the urge to look aboard.

Mobile phone service providers in developing nations has been growing rapidly in the past few years, and the trend is expected to continue for a while. The reason being a) landline is costly and time-consuming to deploy and mobile operator got inherent advantage; b) convenience and symbol as social status.

To mitigate the risk I want to find only companies with solid balance sheet, good track record, and cheap valuation. I believe TSU is the one I am looking for.

I like TSU for the following reasons:
1. rapid growth: subscriber growth faster than competitors, low churn rate (1st line TSU):

2003A 2004A 2005E
Subscribers(1,000) 2,056 5,657 7,487
Tele Celular Sul 2,056 2,990 3,887
Tele Nordeste Cel 2,173 2,666 3,600

Net Adds 332 1,428 1,830
Tele Celular Sul 332 934 897
Tele Nordeste Cel 247 493 933

Gross adds 861 2,541 3,411
Tele Celular Sul 861 1,540 1,764
Tele Nordeste Cel 641 1,001 1,648

Churn rate (in %) 2.3% 1.9% 2.0%
Tele Celular Sul 2.3% 2.0% 2.1%
Tele Nordeste Cel 1.6% 1.8% 1.9%

(abv src: major brokerage report, following src yahoo)

2. cheap valuation:
EV/EBITDA=7.34 (it does not sounds extremly low but for the growth it is very low)

3. strong balance sheet:
Total Cash (mrq): 397.78M
Total Cash Per Share (mrq): 4.522
Total Debt (mrq): 61.22M

4. Presently, TSU has the most advanced mobile network and the widest GSM coverage in Brazil. All cities covered by GSM have access to multimedia services that only TSU can provide. TSU is in a great position distinguish itself from other wireless operators.

As a comparison, AMX has EV/EBITDA of 14.

Assuming EV/EBITDA can reach 10, I think we have another 33% upside from current price of $37.25. I think it will be $50 by year end.

**alex_li_98** Tue Jan 31, 2006 2:15 pm

Discloure: I own TSU shares.

My previous entry in this contest, FTO, was published when the stock was about $34. Today it is about $47. I bought FTO but sold around $37 when the market went down significantly. That is not a bad return (plus I got the $1 special dividend), but looking at today's price I am kicking myself now. I got to be more confident about the picks I find using the value investing tech I learned here. Hope this time I will do better:-) This is actually a very good way of practicing our tech, and I hope more people will participate.

Happy new year, happy investing! Please vote!

**blast_investor** Thu Feb 02, 2006 9:56 pm

Alex,

How do you view the political risk in Brazil?

**alex_li_98** Thu Feb 02, 2006 10:14 pm

An excerp from http://www.factmonster.com/ce6/world/A0857011.html :

Quote: In 1988 a new constitution came into force, reducing the workweek and providing for freedom of assembly and the right to strike, and in 1990 President Fernando Collor de Mello was elected by popular vote. As a result of increasing international pressure, Collor sponsored programs to decrease the rate of deforestation in Amazon rain forests and to protect the autonomy of the indigenous Yanomami. In 1992, amid charges of wide-scale corruption within his government, Collor became the first elected president to be impeached by the Brazilian congress; he resigned as his trial began, to be replaced temporarily by his vice president, Itamar Augusto Franco. In 1994 the supreme court cleared Collor of corruption charges, but he was barred from public office until 2001.

Fernando Henrique Cardoso was elected president in Oct., 1994, and took office in Jan., 1995. The Cardoso government reduced state controls on the economy and privatized government-owned businesses in telecommunications, oil, mining, and electricity. With the help of a new stable currency, Cardoso was able to bring inflation under control; he also signed decrees expropriating new lands from private estates for redistribution to the landless poor.

Reelected in 1998, Cardoso was faced with an economic crisis as budget deficits and a decline in foreign exchange reserves led to currency devaluations and increased interest rates. Late in 1998, he appealed to the International Monetary Fund, which assembled a $42 billion aid package for the country. Brazil then began implementing a program of stringent economic policies that restored investor confidence by mid-1999 and led to economic growth. In May, 2000, Cardoso signed a fiscal responsibility law that limited spending by the states; the legislation was a result of fiscal crises in several Brazilian states.

A series of corruption scandals that undermined the governing coalition in early 2001 was followed by an energy crisis that led the government to order widespread cuts in electrical consumption from May until Mar., 2002; the crisis resulted from a drought that reduced the water available to produce hydropower and a decade-long increase in the demand for electricity. Popular dissatisfaction with economic austerities helped fuel the election of Lula da Silva, of the opposition Workers' party (PT), to the presidency in 2002. Da Silva's subsequent inauguration also marked the increasing stability of Brazilian democracy; it was the first transfer of power between elected presidents since 1961. The new president did not deviate greatly from his predecessor's economic program, however, which alienated many supporters on the left.

Da Silva's government was hurt by a campaign finance scandal in early 2004 and by an increase in unemployment, and suffered losses in popular and congressional support, although economic growth in 2004 was strong and unemployment subsequently decreased. In June, 2005, the president was further hurt PT officials were accused of buying the votes of some of its congressional coalition members. The charges, made by the leader of a party in coalition with the president, led to the resignation of the president's chief of staff and of the Workers' party leader and treasurer and forced the president to reshuffle his cabinet to shore up coalition support for his government. A separate bribery scandal led to the resignation of the speaker of the House in September. Although the president weathered the scandals, they led to the sidetracking of social-reform legislation he had proposed.

It seems Brazil is on a good track that will keep political struggles away from economy. Also I think service providers like TSU are less sensitive to political problems than oil/mining industry. What do you think?

-Alex

**blast_investor** Thu Feb 02, 2006 10:59 pm

I do not know that much about Brazil stocks.

Are Mexican stocks considered safer stocks than Brazilian stocks?

Brazilian stocks seem to be a lot cheaper tha its Mexican peers.

For example:

Brasil Telecom Participacoes S/A. (BRP)

This BRP is also a lot cheaper than Mexican stocks

**alex_li_98** Fri Feb 03, 2006 12:27 am

I don't know why Mexican stock has higher value on wall street. Maybe it is closer to US and NAFTA?

I feel if the Brazil economy grows, TSU should be very good.

-Alex

**jianyunli** Wed Feb 08, 2006 8:59 pm

good job
good pick, good job