Tim’s Cheap Phones Make It Americas’ Top Pick: Corporate Brazil

Tim Participacoes SA (TIMP3)’s strategy to focus its mobile-phone sales on Brazil’s lower-income families is making the stock the industry’s top pick in the Americas.

Tim, the Brazilian unit of Italy’s largest phone company, has a consensus analyst rating of 4.45, the highest among the biggest 40 telephone companies by revenue in the Americas, according to data compiled by Bloomberg. The figure, which is the average within a range of one to five, with five being the highest, compares with a 4.36 and 4.33 rating for runners-up Telefonica Brasil SA and U.S.-based CenturyLink Inc. (CTL), respectively.

Tim, Brazil’s second-largest wireless carrier after Telefonica’s mobile unit Vivo, is gaining market share as it boosts sales to consumers who don’t spend a lot of time surfing the Internet or watching videos on their phones, according to Richard Dineen, an analyst with HSBC Holdings Plc.

“Tim focused more on supplying customers with voice and cheaper phones that are really more suitable to more limited data usage, like browsing social networks,” Dineen, who has the equivalent of a buy rating on the stock, said in a July 2 telephone interview from New York. “They have the right handsets, the right marketing messages. They designed the right voice and data packages.”

Telefonos de Mexico SAB, the fixed-line unit of America Movil SAB, has an analyst rating of 1.67, the lowest in the Americas among major companies, according to Bloomberg data. America Movil SAB is delisting Telefonos de Mexico shares.

Tim has advanced 21 percent this year, the best performer on the MSCI Brazil/Telecommunications Services index, which slid 1.2 percent. The company trades at 19.5 times its reported earnings, compared with a 9.2 ratio for Telefonica Brasil.

Market Share

Rio de Janeiro-based Tim operated 26.9 percent of all mobile phones in Brazil as of May, up from 25.3 percent a year earlier, making it the second-biggest carrier in Brazil, according to telecommunications regulator Anatel. Vivo’s market share of 29.6 percent was little changed from 29.5 percent a year earlier. Oi SA (OIBR4)’s share fell to 18.6 percent from 19.4 percent.

Tim’s focus on the faster-growing market of mobile phones makes it a more appealing stock than Oi and Telefonica Brasil, which also offer landlines, said Luis Fernando Azevedo, an analyst at Banco Bradesco SA’s brokerage.

“Tim is a wireless carrier and has been benefiting tremendously from this fast-growing segment,” Azevedo, who rates the stock outperform, said in a telephone interview from Sao Paulo. “While others operate fixed lines, which dilute earnings because the segment has been shrinking in recent years, Tim is almost a pure wireless player.”

Expanding GDP

Bradesco’s outperform rating, which is the equivalent of buy, means that the stock’s return is expected to exceed the benchmark Bovespa index’s gain by 10 percent in the next 12 months.

Demand for mobile phones in Brazil, the world’s second- largest emerging economy, is increasing even as growth is forecast by analysts in a central bank survey to slow to 2.05 percent this year. Gross domestic product expanded 2.7 percent in 2011, down from 7.5 percent in 2010, while the number of wireless-service subscribers rose 19 percent to 242 million in the period, according to Anatel.

Tim’s plan to increase investments in broadband Internet may erode its earnings outlook, said Alex Pardellas, an analyst at CGD Securities in Sao Paulo.

Tim said in a statement in December it plans to invest 7.5 billion reais ($3.7 billion) through 2013 to double its fiber- optic network in Brazil. It aims to provide high-speed Internet to 1 million residential customers in Sao Paulo and Rio de Janeiro states.

Swelling Middle Class

“Tim has engaged in an ambitious plan to offer fixed broadband services,” Pardellas, who rates the stock the equivalent of hold, said in a June 29 telephone interview. “I am a bit cautious as to how they plan to roll this out. They are arriving late compared with peers.”

Growth in the mobile-phone industry has led to a worsening in quality of the services provided because carriers weren’t ready for a sudden increase in demand, Communications Minister Paulo Bernardo said on June 14 in an interview with a pool of radio stations. Bernardo didn’t name any particular carrier.

Tim declined to comment, according to a press official who asked not to be identified by name, citing company policy.

Tim will likely benefit further as more consumers buy mobile phones, said Augusto Lange, who helps manage 1.5 billion reais, including Tim shares, at Neo Investimentos in Sao Paulo. Brazil’s middle class, defined as households with annual incomes of at least 12,000 reais, swelled by 31 million in the past decade, according to a study from the country’s Strategic Affairs Ministry.

“Mobiles are in demand in Brazil,” Lange said. “Tim is the company best positioned to capture the growth.”

To contact the reporters on this story: Lucia Kassai in Sao Paulo at lkassai@bloomberg.net; Ney Hayashi in Sao Paulo at ncruz4@bloomberg.net

To contact the editors responsible for this story: Jessica Brice at jbrice1@bloomberg.net; David Papadopoulos at papadopoulos@bloomberg.net

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