Telecom Company Presentation. Elliot Palmer Eric Richmond

Transcription

1 Telecom Company Presentation Elliot Palmer Eric Richmond

2 Agenda Sector Overview Company Analysis AMT AT&T NIHD (NII Holdings) Recommendation

3 S&P Sector Breakdown Sector S&P 500 Weight SIM Weight +/- Consumer Discretionary 10.30% 9.31% -1.00% Consumer Staples 10.21% 9.04% -1.17% Energy 12.70% 11.54% -1.17% Financials 16.13% 11.74% -4.39% Health Care 10.70% 13.19% 2.49% Industrials 11.15% 11.08% -0.07% Information Technology 18.97% 21.51% 2.54% Materials 3.65% 3.23% -0.42% Telecommunication Services 2.92% 4.30% 1.38% Utilities 3.26% 2.32% -0.93% Cash 0.00% 2.68% 2.68% Dividend Receivables 0.00% 0.05% 0.05%

4 Sector Performance Telecom Performance MTD QTD YTD S&P % 4.17% 4.17% Telecom Services -1.87% -3.44% -3.44% Relative Performance -0.58% -7.61% -7.61%

5 SIM Holdings in Telecom Sector Only Telecom stock in the portfolio is NIHD(NII Holdings) This was a bottom five performer last month with a downside of 6%. NIHD is also one of the top 10 holdings in the portfolio with a weight of 4.3%. The upside to this stock is its strong hold in foreign markets, especially in South America. NIHD is a very volatile stock with a beta of 2.0

6 American Tower Corp. Analysis Two Business Segments - Rental and Management - Leasing tower sites to telecom companies - Largest revenue segment - 11% domestic rev. growth - 46% international rev. growth - Network Development Services - aides clients in acquiring tower sites - Only 3% of revenues and declining

7 Financial Analysis AMT

8 Financial Analysis AMT

9 American Tower Corp. Analysis Important Ratios Management Effectiveness Company Industry Sector S&P 500 Return on Assets (TTM) Return on Equity (TTM) Profitability Ratios Gross Margin (TTM) Net Profit Margin (TTM) Effective Tax Rate (TTM) Financial Strength LT Debt to Equity (MRQ) Total Debt to Equity (MRQ) Interest Coverage (TTM) Current Ratio (MRQ)

10 Stock Valuation American Tower Corp. Sensitivity Relative to Industry High Low Median Current P/Trailing E NM P/Forward E NM P/B P/S P/CF Relative to S&P 500 High Low Median Current P/Trailing E P/Forward E P/B P/S P/CF Absolute Valuation High Low Median Current #Your Target Multiple *Your Target E, S, B, etc/share Your Target Price (F x G) A. B. C. D. E. F. G. H. P/Forward E P/S P/B P/EBITDA P/CF Average 53.72

11 American Tower Corp. DCF American Tower Corp (AMT) Analyst: Elliot Palmer Date: 3/7/2011 Terminal Discount Rate = 11.5% Terminal FCF Growth = 5.0% Year 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E Revenue 1,985,335 2,406,441 2,923,960 3,508,752 4,140,327 4,761,377 5,475,583 6,296,921 7,115,520 7,969,383 8,367,852 % Growth 21.2% 21.5% 20.0% 18.0% 15.0% 15.0% 15.0% 13.0% 12.0% 5.0% Operating Income 784,378 1,039,286 1,287,341 1,403,501 1,656,131 1,904,551 2,190,233 2,518,768 2,846,208 3,187,753 3,347,141 Operating Margin 39.5% 43.2% 44.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% Interest and Other 228, , , , , , , , , , ,107 Interest % of Sales 11.5% 10.7% 10.1% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% Taxes 182, , , , , , , , , , ,031 Tax Rate 40.0% 33.0% 33.0% 33.0% 33.0% 33.0% 33.0% 33.0% 33.0% 33.0% 33.0% Net Income 372, , , , , ,938 1,137,279 1,307,870 1,477,894 1,655,241 1,738,003 % Growth 40.3% 27.1% 9.7% 18.0% 15.0% 15.0% 15.0% 13.0% 12.0% 5.0% Add Depreciation/Amort 476, , , , ,679 1,142,730 1,314,140 1,511,261 1,707,725 1,912,652 2,008,284 % of Sales 24.0% 24.0% 24.0% 24.0% 24.0% 24.0% 24.0% 24.0% 24.0% 24.0% 24.0% Plus/(minus) Changes WC (23,770) (37,118) (61,688) (74,026) (87,350) (100,453) (115,521) (132,849) (150,119) (168,134) (176,540) % of Sales -1.2% -1.5% -2.1% -2.1% -2.1% -2.1% -2.1% -2.1% -2.1% -2.1% -2.1% Subtract Cap Ex 297, , , , , , , ,538 1,067,328 1,195, ,437 Capex % of sales 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 1.8% Free Cash Flow 527, , , ,530 1,145,225 1,317,009 1,514,560 1,741,744 1,968,171 2,204,352 3,423,309 % Growth 33.1% 23.3% 12.1% 18.0% 15.0% 15.0% 15.0% 13.0% 12.0% 55.3% NPV of Cash Flows 6,784,648 27% NPV of terminal value 18,619,732 73% Terminal Value 55,299,615 Projected Equity Value 25,404, % Free Cash Flow Yield 2.44% Free Cash Yield 6.19% 10-year Current P/E Terminal P/E Projected P/E Current EV/EBITDA Terminal EV/EBITDA Projected EV/EBITDA Shares Outstanding 406,948 Current Price $ Implied equity value/share $ Upside/(Downside) to DCF 17.6% Debt 4,804,360 Cash 414,600 Cash/share 1.02

12 Terminal Growth Rate American Tower Corp. Sensitivity Sensitivity Analysis Terminal Discount Rate 10% 10.25% 11% 10.75% 11% 11.25% 12% 11.75% 12% 12.25% 3.50% $ $ $ $ $ $ $ $ $ $ % $ $ $ $ $ $ $ $ $ $ % $ $ $ $ $ $ $ $ $ $ % $ $ $ $ $ $ $ $ $ $ % $ $ $ $ $ $ $ $ $ $ % $ $ $ $ $ $ $ $ $ $ % $ $ $ $ $ $ $ $ $ $ % $ $ $ $ $ $ $ $ $ $ % $ $ $ $ $ $ $ $ $ $ % $ $ $ $ $ $ $ $ $ $ % $ $ $ $ $ $ $ $ $ $ Average of Shaded Area $ Table Max $ Average of Entire Table $ Table Min $ 47.43

13 American Tower Corp. Summary Recommendation: Do Not Buy Not Best in Sector High multiple of 57+ Lower potential upside

14 AT&T Business Segments Wireless Contracts, Data plans and usage Wireline U-verse cable and high speed internet, Land Lines Advertising Solutions Yellow and White Pages Other

15 Financial Analysis AT&T

16 Financial Analysis AT&T

17 AT&T Valuation Relative to Industry High Low Median Current P/Trailing E P/Forward E P/B P/S P/CF Relative to S&P 500 High Low Median Current P/Trailing E P/Forward E P/B P/S P/CF Absolute Valuation High Low Median Current #Your Target Multiple *Your Target E, S, B, etc/share Your Target Price (F x G) A. B. C. D. E. F. G. H. P/Forward E P/S P/B P/EBITDA P/CF

18 AT&T DCF AT&T - T Analyst: Eric Richmond Terminal Discount Rate = 9.0% 1/25/2011 Terminal FCF Growth = 1.5% Year 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E Revenue 124, , , , , , , , , , ,829 % Grow th 2.1% 3.3% 3.5% 3.5% 3.0% 3.0% 2.5% 2.0% 1.7% 1.5% Operating Income 19,715 21,558 22,643 23,751 23,880 24,596 25,334 25,204 25,708 26,145 26,537 Operating Margin 15.8% 17.0% 17.3% 17.5% 17.0% 17.0% 17.0% 16.5% 16.5% 16.5% 16.5% Interest and Other Interest % of Sales 0.5% 0.6% 0.5% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% Taxes 5,537 6,239 6,596 6,881 6,932 7,140 7,354 7,309 7,455 7,582 7,696 Tax Rate 29.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% Minority Interest Interest % of Sales 0.3% 0.3% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% Net Income 13,556 14,558 15,391 15,580 15,683 16,154 16,638 16,520 16,850 17,137 17,394 % Grow th 7.4% 5.7% 1.2% 0.7% 3.0% 3.0% -0.7% 2.0% 1.7% 1.5% Add Depreciation/Amort 19,530 20,065 20,850 21,444 22,194 22,860 22,353 21,385 21,813 22,183 22,516 % of Sales 15.7% 15.8% 15.9% 15.8% 15.8% 15.8% 15.0% 14.0% 14.0% 14.0% 14.0% Plus/(minus) Changes WC (419) (78) (1,435) (1,357) (1,405) (1,447) (1,490) (1,527) (1,558) (1,585) (1,608) % of Sales -0.3% -0.1% -1.1% -1.0% -1.0% -1.0% -1.0% -1.0% -1.0% -1.0% -1.0% Subtract Cap Ex 18,659 17,335 20,335 19,001 19,666 20,256 20,863 21,385 21,813 22,183 22,516 Capex % of sales 15.0% 13.7% 15.5% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% Free Cash Flow 14,008 17,209 14,471 16,666 16,807 17,311 16,638 14,992 15,292 15,552 15,785 % Grow th 22.8% -15.9% 15.2% 0.8% 3.0% -3.9% -9.9% 2.0% 1.7% 1.5% NPV of Cash Flows 96,952 52% NPV of terminal value 90,239 48% Terminal Value 213,629 Projected Equity Value 187, % Free Cash Flow Yield 8.50% Free Cash Yield 7.39% Current P/E Terminal P/E 12.3 Projected P/E Current EV/EBITDA Terminal EV/EBITDA 6.3 Projected EV/EBITDA Shares Outstanding 5,900 Current Price $ Implied equity value/share $ Upside/(Downside) to DCF 13.6%

19 AT&T Sensitivity Analysis Discount Rate Terminal growth Rate 9.00% 9.30% 9.50% 9.80% 10.00% 0.00% $ $ $ $ $ % $ $ $ $ $ % $ $ $ $ $ % $ $ $ $ $ % $ $ $ $ $ % $ $ $ $ $ % $ $ $ $ $ % $ $ $ $ $ % $ $ $ $ $ % $ $ $ $ $ 29.50

20 AT&T Current Price $27.92 Target Price.65(DCF)+.35(Valuation)=$30.87 Current Upside 10.5% Dividend Yield 6.16%

21 NIHD NII Holdings Founded in 1995 as Nextel International, Inc. and changed its name to NII Holdings, Inc. in December 2001 Providing fully integrated mobile communication services in selected Latin American markets Currently operating in Argentina, Brazil, Mexico, Peru and Chile

22 Financial Analysis NII Holdings, Inc.

23 Financial Analysis NII Holdings, Inc.

24 NIHD(Previous Quarter)

25 Sensitivity Analysis NIHD

26 Analysts Recommendations NIHD Current Month Last Month Two Months Ago Strong Buy Buy Hold Underperform Sell Three Months Ago Data provided by Thomson/First Call

27 Telecom Stocks Followed Target Summary Current Target % Upside NIHD $ $ % AMT $ $ % AT&T $ $ %

28 Conclusion Move to even weight with S&P Reduce NIHD by 138 Basis Points Hold 292 Basis Points of NIHD NIHD remains best name in sector with good international(growth) outlook Moving telecom to weight of S&P will allow for investment in other sectors with better upside.

29 What Questions Do You Have?