Telecom Global Four-Pack

04/09/2004 12:00 am EST


Roger Conrad

Chief Analyst/Managing Partner, Capitalist Times

In a report entitled "Best Bargains Abroad," Roger Conrad, editor of the Utility Forecaster, highlights global utilities with "strong growth potential in promising markets, backed by solid finances, low valuations, and generous yields." Here are his top telecoms from Asia and Europe.

"Given the geopolitical situation, now may seem like a very unlikely time for Americans to invest abroad. However, the world’s economies, believe it or not, are growing once again. The global sell-off could well continue if political events spin further out of control. But there’s a silver lining—the selling means another chance to buy selected global telecom utilities on the cheap.

"After more than a decade deep in the doldrums, Japan and its dominant telecom company, powerful Nippon Telephone & Telegraph (NTT NYSE) are breaking out. Creator of the ubiquitous DoCoMo brand, the company has struggled to find its way amid the challenges of competition, technological change, and with regard to Japan’s peculiar impregnable, ossified corporate culture. Notable mistakes have included ill-advised investments in foreign telecom tech upstarts, and there’s still quite a lot to be done. The company, however, is back squarely on a growth track with debt down and wireless and broadband sales surging. Long-moribund wireline units NTT East and NTT West have become profit centers by expanding fiber-optic sales. The stock lost an average of 5.5% a year over the past decade. My bet is a sharp reversal over the next ten years. Buy NTT up to 25.

"Singapore Telecom (SGTJY Other OTC) gained 30% since I first recommended the stock last November. But with newly acquired Australian operations surging—in part due to that country’s robust growth—there’s more to come. The sale of its Belgacom stake went better than expected, providing more cash to expand as well as possibly pay a special dividend. A venture with NTT is constructing wireless fidelity or wi-fi networks in Asia. Its balance sheet is rated A+ stable by S&P and A1 stable by Moody’s, despite a relatively aggressive acquisition program. Singapore’s pro-business regulatory regime ensures steady returns there despite a saturated market. Also a ten-year loser, Singapore Telecom is well on its way to powerful returns and a buy up to 14.

"Though its markets are rocked by terrorism concerns, European economies are finally seeing blue skies. Vodafone (VOD NYSE) holds a solid franchise on their side of the pond, which they’ve parlayed into a powerful global empire. It has made its way to become the world’s No. 1 wireless company with over 120 million customers in 28 countries. Now management is focused on boosting shareholder value by rolling out 3G wireless data services globally and buying back debt and stock. The company must improve performance at its lagging Japanese unit and renegotiate its stake in Verizon Wireless. It’s also likely to launch a bid to take over the rest of French telecom SFR, now majority owned by Vivendi. I expect success in all three areas. VOD is the best buy in wireless up to 28.

"Last month’s tragedy in Spain landed Telefónica Group (TEF NYSE), which had surged 35% from my November recommendation, back in the bargain rack. The irony is the company is on course for double-digit profit growth to the end of the decade after acquiring 10.5 million wireless customers in ten Latin American countries from BellSouth for $5.85 billion in cash and assumed debt. The deal gives the company some 40.8 million wireless customers in the region, providing numerous opportunities to boost profits from synergies and riding the region’s emerging comeback. Fourth quarter sales posted their second straight quarterly rise, soaring 9%. Wireline margins in Spain could be clipped if the victorious Socialists take a more active role. But with global wireless by far the bigger business, they can only do so much damage. In fact, relations could actually improve under a government less ideologically committed to deregulation. Suddenly cheap TEF is a buy up to 46."

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