Hot Move to Watch: Telecom Argentina S.A. (NYSE: TEO)

On Wednesday 15 May, Telecom Argentina S.A. (NYSE: TEO) shares price traded between $14.11 and $14.84 during the last trading session above/below with +1.31% at $14.72. The shares recorded trading volume 520,629 shares as compared to its average volume of 302,978 shares. The company has 2.15B shares outstanding and market value of 6.509B. Over the one year trading period, the stock has a peak price of $23.90 and its down is recorded at $12.34.

Telecom Argentina S.A.  (TEO) reported recently a Net Income of P$5,536M for the yearlyperiod ended December 31, 2018, a decrease of P$9,208M or 62.5% when contrast to FY17. Net loss attributable to the Controlling Company amounted to P$5,294M.

It is worth mentioning that the comparative figures for the previous reporting periods have been restated so that the resulting comparative information is presented in terms of the current unit of measurement as of December 31, 2018.

As of December 31, 2018, mobile clients amounted to 21.0M.

In FY18, mobile services revenues represented P$57,776M (-8.7% vs. FY17). This variation was mainly Because of the higher effect of the restatement of revenues of FY17 vs. FY18, partially offset by the raise in the ARPU.  The commercial strategy was focused on promoting the consumption of mobile internet services through an update of the integrated offer of plans suitable for all market sections. 

In turn, equipment revenues amounted to P$12,834M (-P$2,274M or -15.1% vs. FY17). This variation is mainly Because of the greater effect of the restatement of the revenues of FY17 vs. FY18, in order to be expressed in homogeneous currency as of December 31, 2018 and by a decrease in the quantities sold, partially offset by the raise in prices of handset sales.

Mobile Services in Argentina

As of December 31, 2018, Personal reached 18.3M subscribers in Argentina, where postpaid clients represented 39% of the subscriber base.

In FY18, mobile service revenues in Argentina (not including equipment sales) amounted to P$51,089M (-6.2% vs. FY17). Considering mobile revenues in current terms, mobile internet revenues reached 62.1% of service revenues of Personal in Argentina (vs. 49.7% in FY17).

The average monthly revenue per user (‘ARPU’) of Personal in Argentina amounted to P$174.0 during FY18 (+22.3% vs. FY17).

As of December 31, 2018, Nextel IDEN subscriber base reached about 0.3M subscribers, where postpaid clients represented 80% of the subscriber base and prepaid clients represented the remaining 20%.

Internet Services

Internet services revenues totaled P$37,742M during FY18, +14.6% vs. FY17. As of December 31, 2018, total broadband accesses raised to over 4.1M (+1.2% vs. FY17). Additionally, broadband ARPU amounted to P$623.4 per month in FY18 (+34.6% vs. FY17). Moreover, the average monthly churn rate for the period was 1.9%. On the other hand, clients with service of 20Mb or higher presently represent 40% of the total consumer base as of FY18.

Consolidated Operating Costs

Consolidated Operating Costs (including D&A and impairment of PP&E and intangible assets) totaled P$146,789M in FY18, a decrease of P$7,850M, or -5.1% vs. FY17. These lower operating costs vs. FY17 are mainly associated with the higher effect of the restatement of FY17 vs. FY18 operating costs, in order to be expressed in constant currency as of December 31, 2018, which allowed an raise in Operating Income before D&A and a margin expansion. Moreover, this decrease in costs was partially offset by greater costs of services contracted with suppliers, including higher programming and content costs due the incorporation of broadcasting signals of football matches, and an raise in the charge for bad debt expenses.

Net Financial Results

The Net Financial Results (including Financial Expenses on Debt and Other Financial Results, net) showed a loss of P$18,795M in FY18, contrast with a gain of P$3,886M in FY17. The result was mainly Because of an raise in financial expenses on debt of P$30,780M, mostly Because of the strong depreciation of the peso during the FY18 and greater interest expenses generated by an raise of the net financial debt, followed by a decrease in other financial results, net (not including RECPAM) of P$3,382M vs. FY17 (reaching P$1,774M in FY18). The aforementioned lower results were partially offset by a greater RECPAM (inflation adjustment gain / loss) which amounted to P$13,403M (generating greater earnings of P$11,481M vs. FY17).

Analyst recommendation for this stock stands at 3.10. The P/E ratio was recorded at 54.12.The volatility in the previous week has experienced by 5.51% and observed of 4.97% in the previous month.11.00% ownership is held by institutional investors while insiders hold ownership of 59.00%.

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