O Santander has a new favorite stock in the telecommunications. A Alive (VIVT3) became the bank’s top pick, with an “outperform” recommendation (expected performance above the market average, equivalent to a “buy”) and an updated target price of BRL 55 per share (against BRL 52 previously).
After delivering strong numbers in the first quarter, Vivo should continue with solid operational momentum throughout 2023, with strong underlying trends for all business lines, assesses the institution.
“At the mobile segmentthe combination of robust net additions with healthy pricing dynamics should make Vivo grow significantly above inflation”, comment Felipe Cheng and Cesar Davanco, in a report published this week.
“Robust underlying trends are also present in the fixed telephonyas the segment should continue delivering good growth in FTTH (Fiber to the Home, or Fibra Para o Lar, in Portuguese), strong performance in the B2B segment and a lower relevance of legacy revenues within the general mix”, they add.
Analysts add that Vivo has the dividend yield (dividend yield) highest within the industry at around 9% for this year. 2023 should be a good year for the operator in terms of cash flow expansion, considering that it may show Ebitda margin expansion and capex decline (investments).
In Santander’s assessment, the increase in the Ebitda margin and a lower capex may allow Vivo to deliver a yield robust free cash flow of approximately 12%.
“Assuming that Vivo’s request for a capital reduction is approved, we believe that a good part of the cash generation can be distributed to shareholders”, say Cheng and Davanco.
Is Tim no longer worth it?
Although Tim is no longer Santander’s top pick, the “outperform” recommendation remains intact, with a target price of R$ 17. The bank believes that the increase in prices will continue to be the main reason for the company’s growth in the coming quarters , since the operator signaled that it will not change its upsell/cross-sell.
Like Vivo, Tim should take advantage of a strong year of cash generation, under the expectation of a growing Ebitda margin and a drop in capex.
The loss of market share in the mobile segment is the main risk of downside (fall) for the estimates. Tim has reported weak numbers of net adds since the acquisition of Hi Mobileemphasize the analysts.
Source: Moneytimes
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