- A strong earnings report from Telecom Argentina is being overshadowed by the country defaulting and the CEO leaving.
- I still own shares and still see shares as being undervalued as I take a long-term view.
- In spite of Argentina’s default and the CEO leaving, shares are still higher by 21% since my article came out as I correctly predicted its business would continue to grow.
First things first, Telecom Argentina's (NYSE:TEO) results for the first half of this year were strong. Revenues rose 22.6% with fixed data, Internet and mobile all showing double digit increases over 2013. Mobile subscribers increased 500k to 19.8 million. Mobile Internet Data services increased 19.2% and accounted for 58.8% of mobile revenues. Mobile average revenue per user (ARPU) increased almost 10% to P$70 per month. Net income for the 1H2014 increased over 24% compared to 1H2013.
Right now, the macro concerns are the main focus for investors. The key to remember is that the default is a technical default. The 2001 default was much different in that the country could not pay its debts. This time, Argentina can pay its debts, but Argentina and hedge funds led by Paul Singer cannot come to terms. The hedge funds are insisting on full repayment on bonds they own from the 2001 default. After Argentina defaulted, the hedge funds scooped up the bonds at a discount and are now demanding full repayment. While this technical default is a delay, some big name investors are starting to see Argentina as a long-term opportunity. Hedge fund managers Dan Loeb and Mike Novogratz came out last month and said that they are buying stocks and bonds in Argentina. I recommended investors do the same in my April article where I said:
I see changes occurring in Argentina that make the company a worthwhile investment now. Besides the utter cheapness of Telecom Argentina based on the company's cash flow, margins, earnings, revenues and growth prospects, Argentina is looking more attractive for foreign investors.
The departure of CEO Stefano de Angelis looks to have been in the making ever since Telecom Italia (NYSE:TI) agreed to sell its stake in Telecom Argentina to Mexican billionaire David Martinez. Stefano de Angelis plans to return to Telecom Italia and take a management position there. The transaction between Telecom Italia and Martinez was announced last November and is awaiting regulatory approval. Since de Angelis is leaving, regulatory approval is most likely forthcoming and Martinez will pick the new CEO. Once the transaction with Martinez is complete, I'll do a new article on his plans for the company. Overall, I see his involvement as a big win for Telecom Argentina and shareholders like myself. Martinez has been referred to in the press as the "new Carlos Slim."