Oi (OIBR3): 3 points of concern that make the role uninteresting, according to UBS

O UBS-BB lowered the target price of Hey (OIBR3;OIBR4) by 64%, from R$1.7 to R$0.6, and lowered the buy-to-sell recommendation.

According to analysts, although it is not easy to lower the stock now, after the OIBR3 down 70% in 12 months, the new model suggests that Oi’s scenario is challenging on many fronts.

“The main upside potential we see for Oi could come from liability management, where the potential for cost improvement is challenged by the current environment of low liquidity and high risk aversion”, he says.

But analysts say the high complexity and limited room for maneuver could drive investors away. “That’s why we prefer to remain on the sidelines”, he adds.

Here are three points of concern raised by analysts UBS:

Oi’s competition

O UBS says that the Brazilian broadband market is divided between the three biggest players (52% market share) and more than 15,000 broadband providers.

This fragmentation has two consequences, according to the report:

1. fierce competition, which has led to a reduction in the pace of Oi’s net additions (along with its peers) and may limit its ability to increase prices; and
2. market consolidation, which will strengthen Oi’s competitors;

“Market consolidation will also drive network consolidation, resulting in lower demand for services V.S. – a trend so far confirmed by our channel checks,” he says.

Debts and interest rate hikes

Analysts calculate that cash burn driven by interest expenses is higher. The Basic Interest Rate, the Selic, has skyrocketed in the last year and may remain high for a long time.

“Our net debt forecast is 80% higher between 2023 and 2026, as interest expenses plus other liabilities exceed Ebitda (R$ 1.9 billion/year), resulting in cash burn in the period”, he says.

Return with V.tal can take years

The analysts of UBS point out that the company’s prize is its participation in the V.S.which has been reduced to 34.7% (from 42.1%) and can take years to monetize.

They say that V.S. will launch with a significant level of cash burn and limited new customer engagement.

“Despite our constructive vision for the medium term, we believe that the short-term reality can be challenging”, he emphasizes.

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