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Subject:  Altel, anyone? Date:  5/12/2002  11:35 PM
Author:  PhoolishPhilip Number:  1360 of 1933

Call me crazy for even suggesting a telcom company (that isn't LVLT, of course), but it looks to me like Altel just entered value territory. One might also make an argument for SBC as well. Let me lay out the argument for Altel.

Altel is a wireless and wireline telecommunications company serving primarily rural telcom markets. Here is a graphic of Altel's wireless and wireline footprint:

http://media.corporate-ir.net/media_files/NYS/AT/presentations/GoldmanSachs5_8/sld005.htm

Altel has been the best performer of the local phone companies over the past several years, and it has been the only telcom company I'm aware of to avoid getting axed by Mr. Market--that is until now. It looks to me like the debt problems of all the other telcom companies, but especially Worldcom, have started to taint Altel as well. Does Altel deserve to be whacked? Let's look at the numbers.

EPS AVG PE Price/Sales Price/Book Net Margins Debt/Equity ROE

Current $2.92 16.2 2.0 2.6 11.7 0.65 16.2
Dec-01 $3.34 17.7 2.5 3.4 13.8 0.69 18.8
Dec-00 $6.20 10.5 2.8 3.8 27.8 0.91 38.6
Dec-99 $2.47 30.0 4.1 6.2 12.4 0.89 18.6
Dec-98 $1.89 26.4 3.2 5.2 10.1 1.07 16.1
Dec-97 $2.70 13.2 2.3 3.4 15.6 0.85 23.1
Dec-96 $1.52 20.5 1.8 2.8 9.1 0.84 14.0
Dec-95 $1.85 14.7 1.8 2.9 11.4 0.91 18.4
Dec-94 $1.43 19.4 1.9 3.5 9.2 1.14 16.8
Dec-93 $1.39 19.5 2.4 3.6 11.2 1.03 17.0
Dec-92 $1.25 17.0 2.1 3.4 10.9 0.79 17.7

10YrAvg $2.40 18.9 2.5 3.8 13.2 0.91 19.9

Earnings have been fairly consistant and have risen in each of the last four years (adjusted earnings for 2000 are $2.55 after deducting a one time gain). At a current PE of 16.2, Altel trades at a slight (~14%) discount to its ten year average PE of 18.9. The current P/S and P/B ratios are near ten year lows. One of the things I like about Altel is the consistantly high ROE, averaging nearly 20 over the decade. Looking at Altel from a relative valuation, it looks like it is selling on the low end of its historical averages.

On of the things that has scared folks away from telcom is debt. It looks to me like Altel has no serious debt problem. As of the end of the first quarter they had $3.685 billion in long and short term debt. One way to determine whether debt is too burdensome is to look at the ratio EBIT to interest expenses including minority interest. The EBIT interest coverage ratio for each of the past five years beginning in 2001 and going back to 1997 was 5.9, 9.2, 4.4, 3.7, and 7.4 respectively. In otherwords, Altel has no trouble covering its interest obligations. Perhaps some of the recent price drop is the result of Altel announcing an additional $1.25 billion debt offering. This would raise its total debt obligation to just under $5 billion. If anything is going to scare one away from Altel it would be this debt burden.

Now lets turn to valuing Altel. The annual dividend of $1.36 is currently yielding 2.9%. The earnings