Latam Telecom, Media, Tech & Payments Handbook March 2023 MC

 Strong Momentum Stocks we expect to have stronger short-term share momentum Momentum Strongest Momentum Sinqia (SQIA3): (OP, R$24 TP: 63% upside potential). Sinqia shares have not performed well since Q4 results. In Q4, although headline numbers came in in line with consensus, slowdown in organic revenues caused some concerns among investors. We believe that there is room for SQIA shares to rebound given the very attractive valuation at 14x adj P/E and the fact that revenues growth should re-accelerate based on the strong ARR growth of >2% reported in Q4, organically. SQIA’s low ADTV of USD1mn/day continues as the main issue in the case, in our view. TOTVS (TOTS3): (OP, R$34 TP: 29% upside potential). While headline numbers frustrated in Q4, operating underlying trends remained solid. We expect revenues and margins dynamics to improve in Q1. TOTVS is confident in the sustainability of its real growth in ARR owing to improved distribution and reduced TCO. JV news and M&As are potential catalysts. TOTVS’s 20x adj. P/E is attractive for a high-growth, resilient, inflation-protected business. VTEX (VTEX): (OP, US$6.50 TP: 80% upside potential). VTEX expects a slowdown in revenues growth in 2023 due to sluggish e-commerce growth in the region. However, its revenues growth guidance of 15%-19% is still healthy and likely enough to dilute costs. We estimate full-year operating profits to turn positive already in 2023 with valuation multiples attractive as of 2024. Our DCF-based TP reflects our view of sound long-term outlook. Cielo (CIEL3): (OP, R$7 TP: 43% upside potential). While the current outlook for the payments industry does not look bright, Cielo’s valuation seems low enough to bring some upside potential to the shares, in our view. We see CIEL3 at 7.7x P/E in 23E and 7.2x in 24E. Also, we see Cielo in a positive earnings momentum with a gradual nominal increase in profits throughout the year, especially as of Q2 with lower interchange fees. TIM (TIMS3): (OP, R$16 TP: 26% upside potential). We have seen some positive pricing developments in the mobile market, with Vivo, Claro and TIM implementing price increases in their headline (website) prices. We expect a rational pricing environment to allow for a sustainable above-inflation revenues growth and margin gains in the coming years. TIM is the cheapest telco in our coverage at 3.9x EV/EBITDA, in addition to a 10% dividend yield. Telefonica Brasil (VIVT3): (OP, R$46 TP: 19% upside potential). Vivo continues delivering solid execution in the mobile market while its fixed-line revenues accelerate. We estimate a robust FCF expansion of 31% in 2023 owing to a good decline in capex. From a valuation perspective, Vivo is no longer a bargain at 4.5x EV/EBITDA 2023E but its 10% div yield still leads to a good carry in a challenging year for the equity market. Televisa (TV): Outperform (OP, US$6 TP; 31% upside potential). We believe that competition in broadband will rise significantly with Total Play’s and Mega’s new HPs overlapping with TV. At the same time, Sky is undergoing a transformation process amid declining interest for pay-tv. Even though, if we assume TVUV fair multiple at 7.0x EV/EBITDA 23E, the implied multiple of TV’s operations is 3.2x, already decent discount to Mega’s 4.2x. 2 Credit Suisse Report Tracking ID 10111140 Momentum Locaweb (LWSA3): (N, R$7.5 TP: 47% upside potential). Despite a positive view on LWSA’s growth outlook as a comprehensive and integrated platform seems compelling for SMBs, we see LWSA’s P/E as excessively high at 29x 23E. LWSA is at a significant premium to TOTS despite a lower growth as seen in Q4. Additionally, expectations on a potential margin increase in 2023 might be once more hampered based on the weak margin in Q4. Weak Momentum Stocks we expect to have weaker short-term share momentum Weakest Momentum Equity Research | 2023