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Investment Thesis
Avoid investing in Telecom Argentina (NYSE:TEO) stock due to excessive valuation and uncertainty due to the put up-merger integration occurring on the firm following its merger with Cablevision.
Introduction
Telecom Argentina is a telecom operator with operations in Argentina and Paraguay and is publicly traded within the US. Telecom Argentina has 3,920,000 fastened strains in service and 19,514,000 cell subscribers in Argentina. Telecom Argentina is in a interval of fast change that can make it stronger throughout the merger with Cablevision.
Merger with Cablevision
Telecom Argentina’s merger with Cablevision supplies it with further TV belongings in Argentina and Uruguay. Also, this merger supplies Telecom Argentina with more money of about $4 billion for capital investments over the following 3 years. These investments should play out for the stock to have a greater valuation, and this agrees with the funding thesis. The merger’s largest profit is to supply Telecom Argentina extra monetary strength to deploy 4G fiber optics throughout its working area in Northern Argentina, Paraguay, and Uruguay. Also, within the North area of Argentina, it permits Telecom Argentina to deploy one singular set of belongings and thus present price synergies as a substitute of deploying 2 units of belongings. Telecom Argentina ought to use US community tools from Cisco (NASDAQ:CSCO), Ericsson (OTCPK:ERIXF), and Qualcomm (NASDAQ:QCOM) for this 4G deployment as a result of these are the consultants, and will keep away from Huawei tools, which is filled with bugs and again-doorways for surveillance by the Chinese authorities.
Financial Analysis
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Telecom Argentina |
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PROFITABILITY INDICATOR RATIOS |
2017 |
2016 |
2015 |
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Gross Profit Margin |
54.03% |
53.03% |
52.66% |
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Operating Profit Margin |
20.73% |
17.73% |
17.25% |
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Pretax Profit Margin |
17.80% |
10.50% |
12.65% |
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Profit Margin Analysis (Net Profit Margin) |
11.68% |
7.45% |
8.39% |
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Effective Tax Rate |
33.56% |
28.47% |
33.00% |
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Return On Assets |
14.46% |
9.20% |
10.51% |
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Return On Equity |
35.97% |
21.76% |
21.53% |
Telecom Argentina’s gross revenue margin remained flat from 2015 to 2017 on account of a proportional improve in the price of gross sales as revenues elevated. Its working margin elevated from 2015 to 2017 on account of sharp decreases in third-get together working bills within the fastened line phase, and Telecom Argentina’s pretax revenue margin elevated from 2015 to 2017 on account of sharp decreases in finance bills, together with curiosity on loans and international foreign money alternate losses. The firm’s internet revenue margin elevated from 2015 to 2017 because of sharp decreases in finance bills. From 2015 to 2017, Telecom Argentina’s efficient tax charge remained flat. Telecom Argentina’s return on belongings and fairness elevated from 2015 to 2017, due to elevated profitability, and Telecom Argentina’s return on belongings and fairness had been within the double digits, which is excellent.
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Telecom Argentina |
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DEBT RATIOS |
2017 |
2016 |
2015 |
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Debt Ratio |
59.91% |
59.64% |
55.30% |
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Interest Coverage Ratio |
9.65 |
3.95 |
7.77 |
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Financial Leverage Ratio |
2.49 |
2.36 |
2.05 |
Telecom Argentina’s debt ratio elevated from 2015 to 2017 due to elevated liabilities on account of financial institution loans from International Financial Corporation. These loans originated in 2016. The firm’s curiosity protection additionally decreased from 2015 to 2017 on account of curiosity funds rising, because of the extra loans on its steadiness sheet. Additionally, Telecom Argentina’s monetary leverage ratio elevated from 2015 to 2017, however solely barely as a result of belongings elevated on account of elevated present belongings and property, crops and tools.
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Telecom Argentina |
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INVESTMENT RETURN |
2017 |
2016 |
2015 |
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Price/Book Value Ratio |
4.27 |
5.24 |
2.59 |
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Price/Earnings Ratio |
12.92 |
25.49 |
13.10 |
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Dividend Yield |
4.25% |
1.97% |
1.90% |
Telecom Argentina’s value-to-e book worth elevated from 2015 to 2017 due to the robust synergies anticipated within the Telecom/Cablevision merger. So, actually, Telecom Argentina is costlier for brand new shareholders however good for shareholders predating the merger. Telecom Argentina’s value-to-earnings ratio remained flat from 2015 to 2017 because of the robust merger sentiment. The firm’s dividend yield elevated from 2015 to 2017 due to its stronger monetary place.
Conclusion
Telecom Argentina is presently merging with Cablevision, so it’ll be within the put up-merger section throughout the subsequent 3 years, and it’ll present loads of worth by rationalizing overlapping belongings and merchandise. The merger with Cablevision provides Telecom Argentina a foothold in Uruguay as properly. Telecom Argentina, additionally due to the merger, now has a much bigger partnership with Huawei which makes its community weak to safety hacks by the Chinese authorities which has opaque connections to the management at Huawei.
Disclosure: I/we have now no positions in any shares talked about, and no plans to provoke any positions throughout the subsequent 72 hours. I wrote this text myself, and it expresses my very own opinions. I’m not receiving compensation for it (aside from from Seeking Alpha). I’ve no enterprise relationship with any firm whose stock is talked about on this article.
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