Worst is behind

After a poor performance in Q2FY16, Oi SA (ADR) (OTCMKTS: OIBRQ) has improved its performance. The company reported EBITDA YoY growth of -20.5% in Q2FY17, Oi SA reported EBITDA YoY of -4.0%. The company has generated cash increase of A R$708 million, with closing 2016 with R$7.8 billion in cash proposition. The revenue for Q4FY16 was at r$6,323 million, -5.7^ YoY and in 2016, revenues was at R$ 25,996 million, -5% YoY. Further, the focus on operations promotes quality improvements and improving network quality. Operational efficiency, productivity gains, and strict cost control resulted in EBITDA margin growth. The net loss was impacted by the write-off of tax credits, with no cash impact. The loss before tax and social contribution amounted to R$3.2 billion in 2016 and net loss after tax amounted to R$7.1 billion in 2016.

Residential ARPU moved up 5% YoY to R$77.2 in Q4FY16, supported by broadband and pay TV whose ARPU climbed 15% and 16.4% respectively over Q4FY15. For FY16 residential ARPU came to R$76.6, 5.5% higher than in 2015.

Increase spend on CapEx

The company has increased its investments and in Q4FY16, the level of OI’s Capital Expenditure is third highest in absolute terms. In 2016, capex represents 19% of revenues.  Oi has increased its Brazilian investments by 17.6% in 2016 and 26.6% in Q416.

Oi’s restructured proposal

OI’s restructured proposal gives creditors that opt for conversion 25% of the company. The creditors would also be given a callable and convertible bond that might represent another 17% of the company, for a total 38% of the company. Accordingly, existing shareholders would retain either 75% or 62% of the company after the restructuring. Further, the Moelis/Sawiris group would envision a conversion of R$24.82 billion of bonds into 95% of OI’s equity. The conversion would be followed by a capital increase of $1.25 billion.

Brazilian telecom sector witnessing positive changes

The competitive environment is mildest since privatization in 1998. The new legislation is expected to be approved soon, which is expected to make the operation more efficient and investments more rational. It is expected to have OpFCF growth and drive up ROICs. Further, the economic recovery with more growth and less inflation would add sector’s performance. Oi stock generated over 69.5%% in this year to date (As of April 14th, 2017; Source: Google finance) while rallied 19.5% on April 13th, 2017.