Cirque Du Telecom: Finding Value Amid The Madness

Step Right Up: Will Telecom's valuation be enough to lure potential shareholders into the arena?

It’s been twenty long years since the privatization of Argentina’s state-owned ENTel, four years since a massive $1.5 billion debt restructuring and two years since a highly publicized government investigation, but the future for Telecom Argentina shareholders still looks as volatile as its past.

According to BusinessWeek, shares of Telecom’s ADRs (NYSE: TEO) have fallen 31% over the past two years “on concern President Kirchner will seize the nation’s second-largest telephone company or force Telecom Italia SpA, a main shareholder, to sell its stake at a below-market price.”

With uncertainty comes opportunity and the lowest price/earnings ratio (5.81x ’10 earnings) of a carrier in Latin America. For those fearful of entering the Big Top, BA-based Guido Bizzozero (”the most accurate analyst covering Telecom) says “the circus surrounding the sale doesn’t affect the company’s numbers…the stock is still cheap.”

Conversely, JP Morgan Chase analyst Brian Chase sees less upside considering the current valuation and higher country risk. Looking forward, Gerson Lehrman Group says “questions of antitrust will come up given the respective ownerships of (Telecom and Telefonica) in the formerly state-owned incumbents in Argentina.” While Telecom’s future remains uncertain, two related trends seem certain: fixed-line subscribers in Argentina will continue to decline and the number of VOIP providers and Skype users will continue to grow unabated.

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