Posted 01/22/2020

General Teleservices (GTLSV)

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Quality

General Teleservices
GTLSV
($7.20)

In 2005, General Teleservices (GTLSV) was spun off from CTelos, and focused on serving the telecommunications needs of two large Mid-Market providers in the US as well as a handful of smaller players in Latin America. Since 2005, GTLSV has grown Adj. EBITDA margins from 10% to 29% (including restructuring charges) thanks to expense-effective fiber roll-out from Carrizo division of Vodafone inLatin America. With the recent completion of the second round of Capex behind the first round, expect the company to ramp up margins moving forward. In addition, a recent lettings transaction for $50m may provide some pretty good cash flow reasons for an investor day they are hosting this year (Sept 25-27).

GTLSV currently trades at $7.20, down from $10.25 in February. This may reflect a shift in sentiment away towards the more attractive cable business. That said, a round of 10m shares gets you to almost $15 vs $7.19 today. Investors remain generally concerned about the competitive environment for wireline and wireless in Latin America and the lack of wireless penetration in the US. As to the former charge, while competition has hurt T/VZ more in Latin America than AT & T, I have not heard a "we are bleeding business to death so we can't trust them" argument – trying to figure out how many households switched over from wireline to wireless every year. Once you believe a company can make the necessary capex work (~$75m/year to vineyard and multimillion-dollar mobile projects, not to mention the costs of running the complementary TV & internet businesses), I believe you will see a business with higher returns on capital and operating leverage vs. wireline.

Catalyst
1. Capex behind expected tower build out
2. Start of remodels (Guardian Towers in 2H 2011, new "Guardians" towers)
3. Athletiings in company's financials (share repurchase, dividend, international growth)
4. Operational leverage & increased EBITDA
5. Divesting unprofitable businesses