New Street Research - Telefonica Brasil S.A. (VIVT3) ... New Street: VIVT3 (Buy, TP: BRL55, +50%) TIMP3 (Neutral, BRL17, +38%) Brazil Telecoms 2023 - Switching Preference to Vivo / Telefonica Brasil (Upgrade to Buy) from TIM (cut to Neutral)

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New Street Research

Soomit Datta

EUR 9599.00 For Business Accounts Only

New Street: VIVT3 (Buy, TP: BRL55, +50%) TIMP3 (Neutral, BRL17, +38%) Brazil Telecoms 2023 - Switching Preference to Vivo / Telefonica Brasil (Upgrade to Buy) from TIM (cut to Neutral)

We think Vivo is set to reverse recent revenue underperformance in Wireless, on the back of ongoing post-paid commercial momentum, whilst showing further expansion in fixed growth.

09/01/2023 1 EN

Underlyings

Telefonica Brasil S.A.

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BRVIVTACNOR0 BM&F Bovespa - Securities, Commodities and Futures Exchange Brazil

TIM Participações

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New Street Research

Provided by our team of experienced analysts, our work is idea driven, based on independence of thought, sector expertise, and firmly focussed on fundamentals and valuation.

New Street Research is an independent, partner-owned, research firm specialising in equity and debt research. Our equity research embraces the following sectors:

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We provide debt research on:

Pan European Telecom Services and Cable

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Analysts

Soomit Datta

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Vivo reported a good set of Q4s, with a 2% EBITDA beat taking growth to 10% y/y, or 6% in real terms. Wireless service revenue growth is running ahead of peers with post-paid adds very strong; fixed has been consistently growing now at 2-3% for a few quarters. Capex came in at a shade below BRL9 billion, a level in absolute terms which think can be maintained for the coming years (and implying falling as % sales).

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Despite the 40-45% rally YTD we continue to like the Brazilian Telco stocks. Wireless operator dynamics remain very favourable with FCF supported significantly for TIM in the near-term by Oi tower decommissioning, with a potentially broader reset for the industry relative to the Tower cos over the mid-term (part of a broader EM theme perhaps following IHS in Nigeria).

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Vivo (Buy, TP: BRL61, +30%) Vivo Q3 23 – Solid quarter, strong FCF paves way for bumper cash return

Vivo reported solid Q3s, with revenue and EBITDA (stripping out a BRL175m gain) 1.2% and 1.5% ahead of consensus, respectively. Service revenue grew 7.5% YoY (similar to Q2) driven by 3% growth in fixed and 9% in wireless, and remaining well ahead of inflation (which is creeping up again in Brazil). FCF generation, supported by falling capex, remains a highlight, with YTD of BRL7.6 billion representing >10% yield to equity – there will be more to come in Q4. FCF paves the way for the BRL5 billion capital stock reduction which we expect in early 2024.

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New Street: VIVT3 (Buy, TP: BRL55, +50%) TIMP3 (Neutral, BRL17, +38%) Brazil Telecoms 2023 - Switching Preference to Vivo / Telefonica Brasil (Upgrade to Buy) from TIM (cut to Neutral)

Vivo (Buy, TP: BRL61, +15%) Vivo - Q4 23: Double digit EBITDA growth, improving cash returns

TIM/Vivo - Maintain Buys; Solid Wireless supported by improving Tower dynamics

Vivo (Buy, TP: BRL61, +30%) Vivo Q3 23 – Solid quarter, strong FCF paves way for bumper cash return

Alphabet (GOOGL, Buy, $213 target) Forget Chrome, 3P payments are the heart of the issue

SATS: DBS merger breaks

3Q24 Broadband Trends: FWA capacity limits; FWA demand limits

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