Update: Oi S.A. Q2 '14 Earnings

Aug. 7.14 | About: Oi S.A. (OIBR)


Oi reported weak results for Q2 '14.

The company has high debt and needs to generate additional cash flow.

As I've stated in my original article, Oi may be a good investment with a time horizon of 2 to 3 years.

Oi S.A. (NYSE:OIBR) reported negative results for Q2 '14. Revenues in Brazil declined 2% YoY to R$6,935 million, and revenues in Portugal also decreased 3.4% YoY in euros. Benefiting from the appreciation of the Euro against the Brazilian Real revenues totaled R$9,024 million ($3.93B) in Q2 '14, up 0.4% YoY.

Since May 5, 2014, PT is being consolidated in Oi's balance sheet and this quarter's result is not comparable to previous quarters. However, it has to be noted that Oi registered a net loss of R$221 million in 2Q14 versus a net loss of R$124 in Q2 '13, and a net profit of R$228 in Q1 '14. Routine EBITDA stood at R$2,471 (+6.9% YoY).

Net debt reached R$46.2B ($20.2B) in Q2 '14, and Portugal Telecom's (NYSE:PT) debt subscription of $1.27B has been defaulted by Grupo Espirito Santo. It should be time now for Oi to generate additional cash flow, not losses. Oi's turnaround has to emerge again and be in place at full speed in order to reach its true potential. Investors have to believe, as I still do, that the future can be different, and the said potential will turn eventually into reality. Nevertheless, several mistakes on the merger process have already turned "a fairly limited potential to fall" as I've put it in my original article into an almost falling knife. Let's hope that - in contrast - in the future its "large upside potential" may stand.

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