IPO Preview: TIM w.e. SGPS, S.A.

Aug.10.11 | About: TIM w.e. (TMWE)

Based in Lisbon, Portugal, TIM w.e. SGPS, S.A [proposed symbol (TMWE)] scheduled $146 million IPO with a market capitalization of $748 million at a price range mid-point of $13 for Friday, August 12. The full IPO calendar for the week of August 8 includes 12 scheduled IPOs trying to raise almost $2 billion.

OBSERVATIONS -- TMWE provides mobile marketing, mobile entertainment and mobile money areas solutions. For the June 2011 six months were up 35% and profits were up 26%. Since 2008 TMWE has earn 4% after taxes on a yearly basis, so TMWE seems entrenched in a profitable niche.

TMWE”s growth has been in Latin America. Future plans are to expand into different cultures worldwide. Yes, TMWE may be successful. However, we’d like to see some demonstrated cross-cultural successes, rather than just rely on growth of the Latin American market.

VALUATION -- At a projected P/E ratio of 42 for the year ending December 2011, TMWE may be able to IPO this week, if the stock market is receptive, but there's no rush to go after this IPO. TMWE's largest market is Brazil, and the Brazilian stock market is off 30% so far this year.

TMWE Valuation Metrics

BUSINESS -- TIMWE provides mobile marketing, mobile entertainment and mobile money areas solutions. TMWE focuses on Latin America including large countries such as Brazil, Argentina, Mexico and Colombia. For the three months ended March 2011 the segment % of revenue generated was 58% for marketing, 28% for entertainment, 14% for money solutions.

Brazil is TMWE’s largest market and accounted for 44%, 40% and 36% of consolidated revenues in 2010, 2009 and 2008. TMWE believes it is in the top three in each of its core markets and number one in Brazil.

In the money solutions area TMWE”s connections with more than 280 mobile carriers allows it to offer mobile billing and micropayment solutions to individuals who do not have access to credit card or banking services.

GROWTH PLAN -- By focusing on geographies such as Africa and the Middle East in particular, and also Asia and Central and Eastern Europe, TMWE believes it can participate in the anticipated growth in demand for mobile services in these markets -- including Puerto Rico, Ecuador and Nicaragua, Nigeria, Pakistan, Malaysia, Indonesia and Vietnam.

LATIN AMERICAN MARKET GROWTH -- The emerging markets that TMWE targets have generally experienced faster economic growth in recent years than those of developed countries.

For example, the Economist Intelligence Unit (2011) reported that GDP per capita in Latin America grew at a compound average rate of 5.7% during 2010, compared with just 2% in Western Europe during the same period. Such growth is expected to facilitate the growth of a middle class with more disposable income, contributing to a greater overall demand for mobile services.

The number of cellular connections in Central and Latin America is expected to grow by 145 million between 2011 and 2016, according to Analysys Mason Research (2011). The number of cellular connections in the Middle East and Africa is expected to grow by an even greater amount — 531 million phones — over this same period.

COMPETITON -- TIMWE competes with a large number of mobile solutions companies in the mobile marketing, mobile entertainment and mobile money areas. Most of the competition focuses on either one or two of these business areas. As far as TMWE is aware, there is no other company that offers the breadth of services in as many countries as TIMWE does.

As a result of industry developments, some of competitors may in the future create an integrated platform with features similar to TMWE’s. For example, Google (NASDAQ:GOOG) recently acquired Admob, Inc. and Apple (NASDAQ:AAPL) recently acquired Quattro Wireless, Inc., while larger companies such as Nokia (NYSE:NOK), AOL (NYSE:AOL), Microsoft (NASDAQ:MSFT) and Yahoo (NASDAQ:YHOO) are beginning to enter the mobile market.

Mobile Entertainment (58% of March 2011 quarter revenues): competitors include mobile device manufacturers, PC-based search engines, Internet portals and directories, and wireless service integrators.

In Brazil, TMWE’s largest mobile entertainment market, TMWE competes with companies such as Spring Wireless, which offers a wide range of interactive media delivery services to television and other media company clients and NeoMobile, the Italian-based media company which, through its Brazilian subsidiary Dindo, offers bundled services of content and SMS.

Mobile Marketing (28% of March 2011 quarter revenues): in the mobile marketing market, TMWE competes with companies that offer solutions that compete with single elements of TMWE’s platform, such as mobile advertising networks, mobile ad serving and ad routing providers, mobile Web site and content developers, providers of mobile publishing and application development, SMS aggregators or providers of mobile analytics. TMWE competes at times with interactive and traditional advertising agencies that perform mobile marketing and advertising as part of their services to their customers.

Mobile Money (14% of March 2011 quarter revenues): in Brazil, TMWE’s largest mobile money market, TMWE competes with companies such as Boku, which offers mobile payment services to its clients such as Facebook and Electronic Arts, and SpringWireless, which offers mobile payment and banking services to its corporate clients.

QUARTERLY RESULTS FLUCTUATE -- TMWE's quarterly results of operations have fluctuated significantly in the past and are expected to fluctuate in the future.

TMWE’s business is seasonal, with revenues generally lowest in the first quarter of the year and gradually building throughout the year, prior to beginning to level off or decline toward the end of the fourth quarter of the year as a result of the termination of seasonal campaigns, cash conservation and reduced activity around the Christmas and New Year holidays, which tends to carry over into the subsequent year as a result of Carnival holidays in Brazil and the summer season throughout Latin America.

Operating expenses do not increase or decrease in direct proportion to generation of revenue, affecting the period-to-period comparability of TMWE's results.

USE OF PROCEEDS -- Shareholders plan to sell 3.75 million shares. TMWE itself plants to sell 7.5 million shares to net $78 million. IPO proceeds are allocated to accelerate expansion into new markets, enhance TMWE’s monetization solutions portfolio through new developments and strengthen TMWE’s capacity to pursue strategic acquisitions.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.