Vivo’s Q2′09 strong results: our opinion

As made before in our previous post related to VIVO Participacoes S.A. (vivo) (4% of TEF 09e EBITDA, and 37% of PT´s), please find next our evaluation on the latest released Q2 09 figures. There has been a strong performance increase (above analyst’s estimates) due to aggressive opex cuts. Top line disappoints with Revenues Q2 09 up just 3.8% (vs 9.2% in Q1) (vs 13.8%e. We were aware Brazil had to face some deceleration throughout 2009, but may be growth in this Q2 looks weaker than expected.

Vivo has continued to make every effort to be the best option among all the mobile telephone operators in Brazil, thus enabling people to connect themselves each time more, at any time, in any place. This is the way how Vivo has managed to ensure sustainable results and reaffirm its market leader position.

        R$million                 2Q09        1Q09       2Q08

    Net Revenue                  3,935.7    4,020.1    3,791.3
    Total Operating Costs       (2,737.9)  (2,816.2)  (2,949.6)
    EBITDA                       1,197.8    1,203.9      841,7
    EBITDA Margin (%)               30.4%      29.9%      22.2%
    Net Result                     172.4      123.5      (63.9)

    Number of customers
     (thousand)                   46,819     45,641     40.435
    Market share                    29.3%      29.7%      30.4%
    Net Additions (thousand)       1,178        696      2,125

In June, Vivo’s customer base reached 46,819 thousand customers, with a 29.3% market share, reaffirming its leadership in the domestic market. The customer base grew 15.8% in the quarter when compared to the same period of last year. In 2Q09, Vivo managed to attract 1,178 thousand new customers, with 19.8% in share of net additions, a growth of 69.3% when compared to 1Q09; Net Service Revenue of R$ 3,630.0 million, an increase of 7.1% over 2Q08;

EBITDA margin in the quarter of 30.4%, a growth of 8.2 percentile points over 2Q08, and 0.5 percentage points over 1Q09. EBITDA reached R$ 1,197.8 million in the quarter, a growth of 42.3% in comparison with 2Q08;

Net profit of R$ 172.4 million in the quarter, 39.6% higher than the figure recorded for 1Q09; R$295.9 million year-to-date, 26.3% higher than the amount recorded in the same period of the previous year;

Increase of 161% in operating cash generation before investment and financing activities, obtained from the “Indirect Cash Flow”, in the comparison of 2Q09 over 1Q09, totaling R$ 1,616.2 million in the quarter. After investment activities it recorded a cash generation of R$ 1,010.8 million.

Net, net:

  1. Subscribers are up 15.8% (vs 19.1% in Q1) but…
  2. ARPU goes down 8.7% to 26.3 BR$
  3. Positive surprise at the opex level, with a decrease of 7.2% in the period
  4. EBITDA growth in Q2 09: +42.3%.

Net income Q2 09: 172.4 Mll. BR$ (vs -63.9 in Q2 08). Obviously, as referred before in our previous posts, top line trend remains a concern, but the very strong margins posted (% Adj. EBITDA /Revenues: 29.2% vs our estimate of 28.4% for the whole 2009) could drive upward revision in consensus estimates, and therefore this Q2 should have a clear positive short term impact on the share.

Enjoy the reading. CVA

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