BUY OR SELL-Will Portugal Telecom ring up more gains?
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By Elisabete Tavares
LISBON, Nov 6 (Reuters) - Portugal Telecom (PTC.LS) shares have outperformed European peers by rising 12 percent this quarter, boosted by growth in Brazil, dividends, and a recovery in its domestic fixed-line business.
The latest move is part of a rally which has seen PT stock ring up gains of nearly 60 percent in the past 12 months.
Even so, many analysts see more upside with at least 10 having 'buy' ratings based, in part, on expectations PT's third-quarter results on Nov. 17 will provide a further boost.
But some say PT has risen past its fair price and expect a downward correction, with the company facing stiff competition from cable operators in Portugal.
BUY RECOMMENDATIONS GALORE
"There is a flurry of buy recommendations with price targets well above the stock's current price. It is not considered expensive in terms of market multiples compared to the peer group," Pedro F&C fund manager in Lisbon, said.
Last month, ING recommended investors switch into PT from Spanish peer Telefonica (TEF.MC), with a 12-month price target of 9.5 euros.
PT shares were up 0.6 percent at 8.06 euros at 1350 GMT.
The stock's rise since the start of October compares with a flat European telecoms sector .SXKP. Telefonica, which along with PT is the co-owner of Brazil's largest mobile phone company Vivo (VIVO4.SA), was up 1.5 percent in the period.
"Vivo's good performance is one of the factors contributing to PT's rise," Pintassilgo said.
On Thursday, Vivo beat expectations by posting third-quarter profit more than double a year ago, [ID:nL5566709].
Exane analyst Mathieu Robillard, who rates PT shares 'outperform' with a target of 9.5 euros, cited exposure to fast-growing emerging markets like Brazil and improving performance in its domestic landline service, which "remains the top fixed-line turnaround story in the sector".
The sale of PT's stake in Moroccan peer Meditel in September was also well received by the market, with the 400 million euro ($595 million) price considered good for a weak-performing Meditel and a strong contributor to PT's dividend.
SELL ON COMPETITION CONCERNS
Analysts at Execution and Nomura, who rate PT a 'sell' and 'reduce' respectively, cited cut-throat competition in Portugal from PT spinoff Zon Multimedia (ZON.LS), pay-TV and internet provider which also offers fixed-line services.
PT has recently invested heavily in fibre-optic networks for its MEO internet, pay-TV and phone service.
"We are not yet convinced that PT's investment will result in fixed-line business growth," Execution said in a recent research note.
"We do not believe that this will be sustainable long-term and expect wireline revenue growth to fade over the next two years as MEO reaches saturation," it said. Execution's target price for PT is 5 euros.
It expects PT third-quarter net income to slump 42 percent and revenues to dip 1 percent.
Nomura analysts, who have a 7 euro target for PT, said they preferred Telefonica shares thanks to the company's more diverse exposure to Latin America.
(Writing by Andrei Khalip; Editing by Dan Lalor) ($1 = 0.6722 euro)
