THE Hey (OIBR3) was one of the main favorite bets of many investors – many with a speculative bias. Even after difficult years and value destruction, the operator managed a growth of 155.81% in its shares last year. However, is all this growth justifiable?
Since its privatization, the Hey is on an unstable trajectory when we talk about the financial point of view. In addition, the company has had several CEOs and partially implemented strategic plans. Thus, losing its way, Hey filed for bankruptcy protection in 2016, due to a series of bad investments.
Furthermore, the Hey has been destroying value year after year, as we can see by the frequent drop in its ROIC. Furthermore, it has a long history of billion-dollar losses. Its efficiency is very low when compared to its peers such as Telephone (VIVT4) and Tim (TIMS3) – that is, margins.
To make matters worse, the Hey has high financial leverage – net debt/EBITDA – in the range of 3.50x. Therefore, it is higher than the figures for Telefônica and Tim, which are 0.24x and 0.75x, respectively.
Finally, the company does not even trade at a lower EV/EBITDA multiple than both of the aforementioned companies. Therefore, it trades at about 30% above them.
Oi's risks
One of the main risks associated with Hey is that the company is in a judicial recovery process. Therefore, the operator must pursue its objectives to get out of this situation. However, there are no guarantees that these objectives will be achieved. Therefore, the company may go bankrupt.
Furthermore, the mobile phone service faces a lot of competition from other service providers, such as Telefônica (Vivo), Tim and Claro.
Finally, the frequent technological changes in the telecommunications sector. This forces Ou to make excessive and frequent investments, making it difficult for it to exit the judicial recovery process.
