Vivo a Robust Brazilian Play
We are keeping our Buy recommendation on Vivo Participações (VIV). The company has a dominant position and a strong brand in the fast-growing Brazilian wireless business. The first-quarter operating results were very positive, including continued debt reduction.
The short-term outlook remains encouraging due to positive industry trends coupled with the improvement in the Brazilian economic environment. Finally, the acquisition of Telemig (TMB) and the new bands in all the regions where the company was not authorized to operate, rendered positive news.
Presently, Vivo is trading at 31.2x our estimated 2008 earnings, and 5.8x its enterprise value to 2008 EBITDA. The high P/E is a result of the low expected net income, since the company has been recovering from a difficult period. We believe in the near future the stock will trade around 7x its enterprise value (EV)/2008 estimated EBITDA, closer to the industry mean. Our target price is US$8.00.
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