Market Overview

Pacific Crest: Time To Buy The Leading Telco In Brazil


Investors looking for exposure within emerging markets should consider Brazil's leading telecom company, at least according to analysts at Morgan Stanley.

In a report published Monday, Morgan Stanley's Telecom analyst Michel Morin stated that the recent selloff in Telefonica Brasil SA (ADR) (NYSE: VIV) has resulted in an "improved" risk to reward profile.

Telefonica Brasil (through its Vivo subsidiary) leads the Brazilian telecom market with 34 percent of the country's total service revenues. The company's mobile (60 percent of the company's revenue) segment controls a 41 percent share of the total postpaid market and 37 percent share of total service revenues.

Morin said Telefonica Brasil has been growing its already dominant position within the market. The analyst estimates that Vivo gained 215 basis points of revenue share over the past 12 months, partly due to its "perceived superior" network quality. In addition, the recent acquisition of GVT gives Vivo a "new pillar of growth" that could offset some ongoing challenges in its home market of Sao Paulo.

Morin added that the stock has sold off in recent months over concerns that Brazil's government may remove the tax benefit associated with Interest on Capital (IOC) and increase the FISTEL (Funds for the Inspection of Telecommunications) tax rate. The analyst stated that the proposal to remove the IOC is "facing political resistance" while recent conversations with management teams across several Brazilian telecoms "leads us to believe" that the proposal to increase the FISTEL tax rate is "very unlikely to pass."

Finally, Morin noted that the company presented a "best case" synergy target of R$16.2 billion. In fact, the analyst recently met with the company's CEO Amos Genish and was "encouraged" that the top 50 executives are incentivized to deliver on synergy targets within their areas and the corporate culture is "evolving" under its new CEO.

Shares were upgraded to Overweight from Equal-weight with an unchanged $14 per ADR price target.

Latest Ratings for VIV

Jul 2020ScotiaBankMaintainsSector Outperform
May 2020BarclaysMaintainsEqual-Weight
Apr 2020Goldman SachsUpgradesNeutralBuy

View More Analyst Ratings for VIV
View the Latest Analyst Ratings


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Posted-In: Amos Genish brazil Michel Morin Morgan Stanley Telefonica BrasilAnalyst Color Upgrades Analyst Ratings

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