As emerging economies grow, so does the quality of life. These consumers are trading in their dubbed "Survivor" episodes for locally produced media, but how do you trade them? Investors owe it to themselves to take a look at Net Servicos De Comunicacao (NETC) based in Brazil.
NETC just reported earnings on October 27, posting some very impressive numbers. NETC‘s pay TV subscriber base ended 3Q10 with 4,065,000 clients -- an increase of 183,000, or 12% from 3,645,000 at the end of 3Q09. Broadband base totaled 3,329,000 clients at the end of 3Q10, up 19% from 2,790,000 at the end of 3Q09.
The company also has a growing fixed-line business, giving it the triple play in rich Brazilian markets like Sao Paulo and Rio de Janeiro. Fixed lines in service at the end of 3Q10 grew 20% to 2,980,000. Net revenue was $1.3 billion, growing by 16% thanks to the double-digit expansion of the client base across all services.
The Fundamentals: The third quarter of 2010 was marked with net improvement thanks to better sales and a lower churn rate. The growth proves that initiatives taken throughout the year are bringing the desired result in the form of strong growth.
NETC seems fairly valued with a PEG of 1.1754, roughly in line with the industry median. However, the company looks cheap on a pure earnings basis with a PE of only 12.69, well below the industry median of 17.04. NETC is one of the more profitable companies in the global broadcasting & cable industry with a net margin of 12.08% and operating margins well above the median.
NETC's debt to total capital ratio of 38.52% is in line with the broadcasting & cable TV industry's norm despite its increase over the last year. With an interest coverage ratio of 2.37 and a quick ratio of 1.4, the company should be able to comfortably repay its debt. The stock only has about 9.43% being held by institution and only 0.06% short interest.
The Technicals: Since earnings, the ADR has been trading on light volume, printing a tight wedge right around the support level established back in mid-March. With the price action off only 12.5% from its 52-week high, the wedge could be suggesting that the stock is making a base before making another run at the high.
Bottom Line: Consider putting a STOP order above the wedge to catch the move up. If the price drops out of the wedge, consider going short with a PUT option. (PUT options define your risk, unlike a naked short position.) The next support line is about $2 below the wedge.