Telecom Argentina Must Steady

Telecom Argentina S.A. (TEO - Analyst Report) is the leading provider of communications in Buenos Aires, Northern Argentina and Paraguay. While the company continues to grow its mobile and data subscriber base, the uncertain economic outlook and challenging competitive environment are considerations that we believe may limit valuation levels.

Furthermore, capital spending is expected to increase materially due to cellular and broadband infrastructure requirements. We maintain our Hold rating until cash flow to debt levels become more favorable on a sustainable basis.

Telecom Argentina continues to perform with inconsistent earnings. Overall operating performance has been overshadowed by significant swings in expenses driven by volatility of the Argentine Peso versus the U.S. Dollar and Euro. However, the ongoing financial restructuring initiative and strong cash flow generation have stabilized the company’s liquidity.

Telecom Argentina is trading at 9.5x estimated earnings for fiscal year 2008, which represents a significant discount to the forward P/E ratio of the peer group and S&P 500 averages. Our six-month target price of $19.00 is based on a 2008 P/E multiple of 10x.

Anindya Barman contributed to this report.

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