NET Servicos: A Smart Way To Play the Latin Boom

I was totally unimpressed with the Mercado Libre (MELI) earnings last week, but that didn't stop the sheep from buying the stock back up to U$55. As mentioned before, I covered my MELI short at a very small profit rather than fight the tide of illogic. I've looked at the company previously, but a few days ago a reader mailed me and said something along the lines of "What about NETC, dude?", and he was spot on with the call. Let's have a look at a much better LatAm company than the overhyped MELI.

Net Servicos (NETC) is a cable TV/internet/phone company in Brazil. In fact it's the biggest single cable player in Latin America. In its Brazil market it maintains a 46% share of the pay TV market, and it has a rising 17.5% share of the broadband internet market. It has recently started one of those fashionable 3-in-1 "triple play" packages for clients that offer cable TV, internet and fixed line phone in a single package, and the growth shown so far has been very good.

This chart (click charts to enlarge)shows the quarterly growth in its client base for the three sectors ...

....and you can see that the company is adding to its traditional pay-TV base in fine style. As little as three years ago, those internet and phone clients basically didn't exist.

It's even growing in its core cable TV division, and unlike its main competitor Sky that has lost 2% of the market in the last 12 months, NETC has kept its share constant at 46%. This provides a solid revenue base on which the new sources of income are building. Or in simple terms you have a company in a fast-growing sector in one of the world's hottest markets that can also rely on a solid revenue base to build its business.

Here's the revenues and EBITDA numbers for the company ...

... which give a good idea of revenues growth. Final after-tax net earnings have been disappointing the market recently, which goes some way to explaining why NETC has lagged the Brazilian market recently ...

Bovespa stock compared to the bovespa index

The Nasdaq quoted version of the company over five years

... but you as an investor shouldn't worry too much about the final bottom line right now as long as the revenues keep growing at the present pace. And as it happens, that YoY revenues growth has been constantly over 50% for the last year. Nothing wrong with the EBITDA evolution, either.

As usual this thumbnail overview will hopefully get you interested in the company enough to find out more details, and doing your own DD is as vital as ever. But the bottom line is that NETC gives the investor a much smarter way of playing the booming LatAm internet sector. The PE of 20X compares to betting on the 200X and above of MELI right now, and NETC also enjoys great growth numbers. Why risk your money on the latest sheep-fashion stock, when you can buy a strong earning growth company for less money?

Comments

[DUMB:]

netc is about to become a virtual monopoly in the cable tv game which still is its main edge and there's nobody near the quality of that network. also their broadband is becoming very strong though here there are more players. the sinergy of tv media plus broadband and phone will pay off in the long run. there is no serious competition to this configuration.

2008 May 19 10:18 PM