Telecom Company Presentation. Jonathan Rice Tianze Zhang Xuan Zhao

Transcription

1 Telecom Company Presentation Jonathan Rice Tianze Zhang Xuan Zhao

2 Agenda Overview Verizon AT&T NII Holdings Recommendation Page 2

3 Overview

4 Overview SIM is 200 basis points underweighted than S&P 500 The class gave the telecom sector 100 basis points to invest Page 4

5 Major Players Performance Page 5

6 Current Holdings NII Holdings We decide to buy another 100 basis points of NIHD Page 6

7 Verizon

8 Company Overview -Verizon Communication Inc. is the holding company. Owns 55% of Verizon Wireless, which is the largest wireless provider and second large wireline business in this country -The two, Verizon and AT&T, combined accounts for more than 60% of market share in both wireless and wireline business. -Stock Performance: Current: $ wk: $ Forward P/E: D Defensive: Beta 0.55 D D D Outperform market +12.6% in last 1.5 month Dividend Yield: 4.8% Page 8

9 Line of business Verizon Communication Verizon Wireless Wireline Service Device Mass Market Global Enterprise Global Wholesale Retail Postpaid Retail Prepaid Consumer Retail Small Business Strategic Service Core Operating Revenue of Two Segment ($ in Millions) Wireless 61% Wireline 39% 2010 Wireless 64% Wireline 36% ,000 40,000 60,000 80, , ,000 Page 9 Service revenue Equipment Other Mass Markets Global Enterprise Global Wholesale Other

10 Fundamental Strength Consolidation vs. Pure Player Scale effect Customer base Brand recognition Capital resource Synergy Diversification geography & service Close Game vs. Direct Competitor AT&T Network reliability and coverage Technology 4G Penetration and customer loyalty Margin: wireless and wireline Potential: time for the late bird Page 10

11 Recent Catalysts: Earnings Earnings Earnings Strong earnings Connection addition Solid cash flow Improved margin Pricing strategy Video business launch Robust FiOS expansion Enterprise solution might recover Flip side Wireline margin to be improved Negative effect from European economy for global enterprise business Capital expediture slowing down Page 11

12 Segment Revenue Segment Revenue of Past 5 Years Million 25% 100,000 42,451 41,227 20% 80,000 49,129 44,323 15% 60,000 40,000 20,000 43,882 49,298 60,325 63,407 70,154 10% 5% 0% -5% -10% Reconciling items Wireline Wireless Wireless Wireline % Page 12

13 Profitability Cost and Earning Structure Million 100,000 80,000 60,000 40,000 20,000 18% 16% 14% 12% 10% 8% 6% 4% 2% Operating Earnings D&A SG&A COS Earning Margin % Page 13

14 DCF Projection Verizon Key Projection Parameters Sales Growth FY FY FY 2014E 2013E 2012E Wireless 4.70% 5.70% 6.70% Wireline -0.50% -0.50% 0.00% Total 2.94% 3.52% 4.20% Operating Earnings Margin Wireless 29% 30% 28.6% Wireline 3.00% 3.20% 2.2% Total 17.26% 17.09% 16.68% Others Effective Tax Rate 18% 18% 18% Capex as % of Sales 13.5% 14% 14.5% Terminal Growth Verizon DCF Results_Sensitivity Discount Rate $ % 9.0% 9.5% 10.0% 10.5% 1.50% % % % % % Verizon DCF Results_EPS 2014E 2013E 2012E Model $2.98 $2.99 $2.56 Consensus $3.07 $2.77 $2.48 Terminal Discount Rate 9% FCF Growth Rate 2.5% Page 14

15 Multiple Valuation Page 15

16 Final Rating: Hold In our case: Not Buying Target Price = 60% DCF + 40% Multiples = Current Price = $41.45 > Target Promising business and cash generation Currently standing at 52 week high and slightly over target price Limited price upside, but stable dividend yield Defensive nature provide good diversification Might be appropriate if the price adjust back Page 16

17 AT&T Inc.

18 Company Overview Formerly known as SBC communications Largest Market Capitalization: $ Billion Second Largest Wireless Carrier million wireless subscribers 29.6% market share of the wireless market Page 18

19 Lines of Business Wireless Segment Wireline Segment Advertising Solution Other Page 19

20 Key Stats Diluted Shares Outstanding: 5950 Million 52 Week Price Range: $27.29-$33.94 Current Price: $33.69 Dividend Yield: 5.20% Page 20

21 Performance Page 21

22 Price Affecting Factor Large amount of dividends: $1.76 per share expected High dividend yield: 5.2% Aggressive share buyback plan: 67.7 million shares in Q Page 22

23 Price Affecting Factor Wireless Data Business Page 23

24 Price Affecting Factor U-verse & Strategic Business Solution Wireline Voice and Advertising Solution are Problem Children AT&T sold Advertising Solution in May Page 24

25 Financial Analysis- Historical Current Ratio, D/E Ratio & ROE Page 25

26 Financial Analysis- Historical Page 26

27 Financial Analysis-Peer Firm Page 27

28 Projections Sales growth rate will be around 1.6% in the future Operating Margin will be back to a high level and I predict it to be around 20% AT&T will continue increase CAPEX in 2012 because of the optical fiber and construction of infrastructure However, CAPEX will reach peak in 2012 and start to decrease afterward My estimate for EPS is higher than the consensus because I think the rapid growth from the wireline data will offset some losses from the wireline voice, making the growth rate of wireline business larger AT&T Expected EPS $2.55 $2.75 $2.87 Consensus EPS $2.38 $2.56 $2.75 Page 28

29 DCF- Sensitivity Analysis Terminal Growth Rate Stock Price 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% Discount Rate 6.00% $48.73 $51.44 $54.70 $58.68 $63.66 $70.06 $ % $41.56 $43.37 $45.49 $47.98 $50.98 $54.64 $ % $36.20 $37.46 $38.91 $40.57 $42.51 $44.81 $ % $30.62 $31.43 $32.33 $33.35 $34.50 $35.82 $ % $28.72 $29.39 $30.14 $30.98 $31.93 $33.00 $ % $26.00 $26.51 $27.08 $27.70 $28.39 $29.17 $ % $23.74 $24.14 $24.57 $25.04 $25.56 $26.14 $26.78 Page 29

30 Multiple Valuation AT&T High Low Median Current Target Target Target Multiple Per Share Price P/Forward E $2.55 $34.43 P/S $21.90 $32.85 P/B $17.86 $32.15 P/EBITDA $7.32 $31.48 P/CF $5.64 $33.84 Multiple Target Price $32.95 Page 30

31 Recommendation Page 31

32 NII Holdings.

33 NIHD Company Overview Latin American wireless 52 Week Stock Price communications provider -- Formerly known as Nextel International Inc. -- Headquartered in VA -- SIM currently owns 9000 shares with a loss of 49.98% -- Competitors America Movil and Telefonica Moviles Page 33

34 Lines of Business 4,000,000 Brazil 2,500,000 Mexico 3,000,000 2,000,000 2,000,000 1,000,000 1,500,000 1,000, , ,000 Argentina 400,000 Peru 40,000 Corporate 600, ,000 30, , ,000 20, , ,000 10, Page 34

35 Key Stats Current Price $11.20 Market Cap Shares Outstanding 52 Week Price Range Revenue FYE 2011 $1.92B 173M $10.33 $44.05 $6.72B Operating Margin 13.5% D/E 1.41 Current Ratio 2.19 Page 35

36 Q (in thousands of $) Q Q % Growth Brazil 821, , % Mexico 544, ,006 (3.98%) Argentina 168, , % Peru 88,788 85, % Corporate 8,174 7, % Page 36

37 2012 Revenue Projections (in thousands of $) Q Actual Q Projected Q Projected Q Projected 2012 Projected Total Brazil 821, , , ,536 3,449,376 Mexico 544, , , ,354 2,286,740 Argentina 168, , , , ,580 Peru 88,788 82,371 85, , ,073 Corporate 8,174 8,206 8,537 8,393 33,310 Total 1,631,221 1,621,465 1,631,050 1,978,344 6,862,080 Analyst Estimates 1,631,221 1,640,000 1,670,000 1,828,779 6,770,000 Page 37

38 Revenue Growth (in thousands of $) Revenue 8,482,981 7,617,104 6,862,080 6,719,344 5,601,316 4,397,599 4,269,380 3,296,295 Revenue Growth (YoY) 11.37% 11.00% 2.12% 19.96% 27.37% 3.00% 29.52% 39.01% 45.00% Total Rev Growth 40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Page 38

39 DCF Assumptions Discount Rate 12.00% Long-Term Growth Rate 4.50% Operating Margin 11% of Revenues Long-Term CapEx Rate 10% of Revenues Interest Expense 4.50% of Revenues Other Expense 0.80% of Revenues Page 39

40 Sensitivity Analysis Page 40

41 Multiples Approach Page 41

42 Technical Analysis Page 42

43 Recommendation One-year price target of $19.03 (70% upside) DCF Valuation of $18.26 (63% upside) Multiples Valuation of $19.42 $21.21 (73% - 89% upside) Technical Analysis near lower Bollinger band BUY 100 bp of NIHD Page 43

44 Recommendations

45 Recommendation NIHD NIHD 2% 1% Original Position Recommendation Page 45

46 Questions

47 Appendix- Verizon Page 47

48 Appendix-AT&T Terminal Discount Rate = 9.4% Terminal FCF Growth = 1.5% Year 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E Revenue 128, , , , , , , , , , ,605 % Grow th 1.57% 1.45% 1.61% 1.6% 1.5% 1.4% 1.6% 1.5% 1.6% 1.4% 1.5% Operating Income 24,465 25,807 26,841 27,499 27,911 28,302 28,755 29,186 29,653 30,068 30,519 Operating Margin 19.0% 19.8% 20.2% 20.4% 20.4% 20.4% 20.4% 20.4% 20.4% 20.4% 20.4% Interest Expense (3,733) (3,917) (4,113) (4,179) (4,241) (4,301) (4,370) (4,435) (4,506) (4,569) (4,638) Interest % of Sales -2.9% -3.0% -3.1% -3.1% -3.1% -3.1% -3.1% -3.1% -3.1% -3.1% -3.1% Equity in Net Income of Affiliates % of Sales 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% Other Income (Expense) net % of Sales 0.2% 0.4% 0.3% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% Taxes 6,746 7,191 7,416 7,522 7,635 7,741 7,865 7,983 8,111 8,225 8,348 Tax Rate 31.0% 31.0% 31.0% 31.0% 31.0% 31.0% 31.0% 31.0% 31.0% 31.0% 31.0% Net Income Attibutable to Noncontrolling Interest (257) (261) (265) (404) (410) (416) (423) (429) (436) (442) (449) % of Sales -0.2% -0.2% -0.2% -0.3% -0.3% -0.3% -0.3% -0.3% -0.3% -0.3% -0.3% Net Income Attibutable to AT&T 14,759 15,744 16,241 16,338 16,583 16,815 17,084 17,340 17,617 17,864 18,132 % Grow th 6.7% 3.2% 0.6% 1.5% 1.4% 1.6% 1.5% 1.6% 1.4% 1.5% Add Depreciation/Amort 18,406 18,673 18,973 19,276 19,565 19,839 20,157 20,459 20,786 21,077 21,393 % of Sales 14.3% 14.3% 14.3% 14.3% 14.3% 14.3% 14.3% 14.3% 14.3% 14.3% 14.3% Plus/(minus) Changes WC 508 (65) (73) (270) (274) (139) (141) (143) (145) (147) (150) % of Sales 0.4% 0.0% -0.1% -0.2% -0.2% -0.1% -0.1% -0.1% -0.1% -0.1% -0.1% Subtract Cap Ex 20,595 20,239 19,901 18,872 19,292 19,700 20,016 20,173 20,641 21,077 21,393 Capex % of sales 16.0% 15.5% 15.0% 14.0% 14.1% 14.2% 14.2% 14.1% 14.2% 14.3% 14.3% Free Cash Flow 13,481 14,502 15,479 16,440 16,583 16,815 17,084 17,449 17,617 17,752 18,018 % Grow th 7.6% 6.7% 6.2% 0.9% 1.4% 1.6% 2.1% 1.0% 0.8% 1.5% NPV of Cash Flows 104,153 52% NPV of terminal value 94,271 48% Terminal Value 231,501 Projected Equity Value 198, % Free Cash Flow Yield 6.73% Free Cash Yield 7.78% Current P/E Terminal P/E 12.8 Projected P/E Current EV/EBITDA Terminal EV/EBITDA 5.6 Projected EV/EBITDA Shares Outstanding 5,950 Current Price $ Implied equity value/share $ Upside/(Downside) to DCF -1.0% Debt 64,750 Cash 3,185 Cash/share Page Total Assets 270,344 Debt/Assets 24.0% Working Capital % of Growth 3%

49 Appendix-NII Holdings Page 49