Brasil Telecom Target $104

We are keeping our current Buy recommendation on Brasil Telecom Participações S.A. (BRP). The company posted better-than-expected results in the first quarter of 2008, and the short-term outlook remains positive. The company also has solid cash flow, decent operating margins in the wireline business, and an attractive valuation.

Additionally, the growth in the wireless and the broadband segments are encouraging and should continue in future quarters. The news on the merger with Telemar (TNE) was not confirmed, but we still believe it will happen soon. That will be positive for both companies.

BRP is trading at 11.3x our 2008 EPS estimate, below the industry mean and median, and an enterprise value to EBITDA (a more common valuation metric for the telecom industry) of just 3.1x our 2008 estimate. We think the stock is trading at a highly attractive valuation. Additionally, the company posted very good results for the first quarter 2008 and the short-term outlook seems promising.

All considered, we are keeping our current Buy recommendation. Our target price is US$104.00, which is based on an EV/2008 estimated EBITDA of 4.0x, close to the industry mean.

Read the full analyst report on BRP.

Read the full analyst report on TNE.

Read the full analyst report on BRP

Read the full analyst report on TNE