Description

This company is a cash machine and holds a legal monopoly. Atlantic Tele-network is a telecommunications company that operates in the Caribbean basin, but the majority of the company’s revenues are derived from their 80% ownership of the Guyana Telephone and Telegraph Company (GT&T). GT&T provides all local and long distance telephone service (both domestic and international) in the country of Guyana (on the northeast coast of South America).

Like many third world countries, phone service in Guyana limited. There is about one phone line for every 10 people in Guyana, and some parts of the country (mainly inner regions) lack any phone service. New technologies, (mainly wireless solutions) should allow the company to provide service to a much larger part of the population at decreasing costs. Telephone rates in Guyana are some of the lowest in the Americas, and the company is currently petitioning the regulatory board in Guyana for a rate increase. The company currently derives most of its revenues from inbound international calls (which provide much better profit margins), but the company hopes that higher domestic rates combined with more phone lines will lead to a better revenue mix and higher overall revenues and profit margins.

The company’s financials are almost hard to believe. Because they own a legal monopoly, they have had a steadily growing and very consistent earnings stream. With $2.51 in trailing 12 month earnings (representing more than a 10% increase over the previous 12 months), the stock is currently trading with about a 4.68 P/E. Their balance sheet is equally strong with about $30 million in cash and only $8 million in long term debt. The stock trades about 75% of book value. The stock also pays an approximately 6% dividend yield ($.175/quarter), which allows investors to realize much of the value of the stock. Needless to say, these metrics compared to other telecom companies make the stock look very cheap.

The company has also used some of its cash to invest in other potentially high growth businesses in the Caribbean area. They own an 80% interest in Digicom which provides wireless data, network, and paging services in Haiti. They own a 30% in a Bermudan cellular service provider (#2 in market share in Bermuda). They also own the largest internet service provider in the US Virgin Islands, and a wireless cable TV in the US Virgin Islands. Although these businesses have yet to add considerably to earnings, they are well positioned for further growth.

The future of telecom services is certainly clouded, but in an emerging market region such as the Caribbean, the growth prospects are amazing. Atlantic Tele-network is extremely well positioned to take advantage of this growth, no matter what technologies emerge. Of course in the meantime, you get a company making great earnings and representing an extraordinary value.

Catalyst

Possible catalysts include:
1) The passage of a rate increase for local telephone rates in Guyana.
2) A buyout by a larger telecomm company wanting a presence in the Caribbean basin.
3) Continued earnings growth and investor awareness.
4) Increased dividend payout.