Analyst Note| Michael Hodel, CFA |
The pandemic hit Telefonica Brasil’s results about as we expected during the second quarter, particularly in the postpaid wireless business, where the firm lost customers for the first time in at least a decade. In addition to earnings, management provided some detail on the joint proposal with TIM and America Movil to acquire Oi. The three firms presented a revised offer earlier this week after Oi announced it had entered exclusive negotiations with an entity backed by U.S. private equity firm Colony Capital. Telefonica management believes working with its two Brazilian rivals will mitigate regulatory concerns, but this remains a key uncertainty. At this point, we don’t plan to materially change our $11 Telefonica Brasil fair value estimate, and we believe the shares are modestly undervalued.