Every once in a while you stumble across a stock that just seems too cheap. You recalculate your numbers a couple of times, but the valuation of the stock still looks out of whack with the current price. Such has often been the case with me and Philippine Long Distance
If you look at second quarter/first half earnings, I suppose you can see part of the problem. Revenue grew all of 2%, and even if you credit back the impact of foreign exchange, we're still not talking about much top-line growth. It certainly doesn't get much easier as you move down the income statement. Operating income? Down 11%. Pre-tax income? Down 21%. The "good" news is that core net income (which readjusts for foreign exchange and some unusual items) was up 6% (less than 4% per share) and EBITDA was likewise up about 6%.
Thing is, there doesn't need to be an abundance of growth for this story to work. Even granting that the fixed line business is a dinosaur, there's still potential in the broadband space; overall broadband subs increased 19% sequentially, with a 49% sequential jump in wireless broadband customers. Granted, we're talking about only 167,000 people, but this is certainly higher-margin growth.
There were also encouraging signs in the wireless business. Revenue growth was a bit more than 5%, but EBITDA grew 9%, and subscriber acquisition costs appear to be headed in the right direction.
I accept that many (if not most) emerging market telco companies don't always get their full due unless and until their particular country becomes a hot-money destination. I've seen it with China Mobile
Dial in to more Foolish takes on international telco:
- Looking at the Big Picture With PLDT
- Stocks for Your Golden Years
- Investing World Cup: China vs. Western Europe
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).