telco valuations

8/14/2019 Telco Valuations

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UBS Investment Research

13 January 2010

European Telecoms Valuation

European Telecoms Team

Laura Janssens, Analyst +44-20-7568 2312 Marcus Baeumer, Analyst +49 69 1369 8244

Nick Lyall, Analyst +44-20-7568 6332 Bosco Ojeda, Analyst +34-91-436 9078

Argiro Papadopoulou, Analyst +44-20-2567 6190 Alex Wright, Analyst +44 20 7568 3240

Keval Khiroya, Analyst +44-207568 6005 Zoltan Palfi, Analyst +44 20 7567 1682

Violeta Katzova, Analyst +44-20-7568 3264

This material was prepared by UBS Limited

Analyst Cert if ication and Required Disc losu res can be found on the Disclaimers and Disclosures page

UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a

conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their

investment decision.


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Price Performance - One-week

Incumbents EMEA

Others Indices

Indices

-15.0% -10.0% -5.0% 0.0% 5.0%

S&P 500DJ Stoxx 600

DJS TelecomsBTTA

KPNPT

TI (Saving)SCOM

FTOTE

BELGTELIA

DTVOD

TITNOR

TEF

-10.0% -5.0% 0.0% 5.0% 10.0% 15.0%

S&P 500DJ Stoxx 600

DJS TelecomsTurk Telekom

OrascomTE

MillicomTurkcellMagyar

Zain KSATPSAQ-Tel

TEF O2Stel

WataniyaZain

VCOMMTS

MobilyMobiNilCellcomPartner

BZQTelkom

DJ Stoxx 600

DJS Telecoms

ZON Multimedia

Cable & Wireless

Telenet

Iliad

Sonaecom

United Internet

Freenet

Tele2

Elisa

Inmarsat

Fastweb

Mobistar

Virgin Media

S&P500

CAC 40

FTSE 100

DJ Stoxx 600

MSCI Europe

SMI (Swiss Market)

Euronext 100

BEL 20

DAX 30

MADX (Madrid)

DJS Telecoms


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Price Performance - YTD

Incumbents EMEA

Others Indices

Note: The charts show price movements

Source: UBS and Bloomberg

-30.0% 0.0% 30.0% 60.0% 90.0%

S&P 500

DJ Stoxx 600

DJS Telecoms

TNOR

PT

TELIA

TEF

KPN

SCOM

BT

VOD

TI (Saving)

TA

BELG

DT

TI

FT

OTE

-60.0% 0.0% 60.0% 120.0% 180.0% 240.0%

S&P 500DJ Stoxx 600

DJS TelecomsVCOM

MTSMobiNil

MillicomBZQ

MobilyCellcom

Turk TelekomMagyar

Q-TelTurkcellPartner

TEZain

TEF O2Zain KSAOrascom

StelTPSA

WataniyaTelkom

-15.0% 20.0% 55.0% 90.0%

S&P 500DJ Stoxx 600

DJS TelecomsVirgin

FreenetSonae

TelenetTele2

UIISATIliadElisaZONC&W

MobistarFastweb

0.0% 10.0% 20.0% 30.0% 40.0%

BEL 20

DJ Stoxx 600

MSCI Europe

MADX (Madrid)

Euronext 100

S&P 500

FTSE100

DAX 30

CAC 40

SMI (Swiss Market)

DJS Telecoms


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Telecoms Earnings Momentum

Source: UBS European Equity Strategy Team; IBES, Thomson Financial Datastream

-20

-10

0

10

20

30

Feb-00

May-00

Aug-00

Nov-00

Feb-01

May-01

Aug-01

Nov-01

Feb-02

May-02

Aug-02

Nov-02

Feb-03

May-03

Aug-03

Nov-03

Feb-04

May-04

Aug-04

Nov-04

Feb-05

May-05

Aug-05

Nov-05

Feb-06

May-06

Aug-06

Nov-06

Feb-07

May-07

Aug-07

Nov-07

Feb-08

May-08

Aug-08

Nov-08

Feb-09

May-09

Aug-09

Nov-09

0

10

20

30

40

50

60

70

80

90

100

110

120

3-MONTH Relative Earnings Momentum Relative Performance (rhs)


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Calendar

Date Company Event Region

January

22-J an Bharti Airtel Q3 10 results Asia

26-J an KPN Q3 10 results Europe

26-J an Verizon Q4 09 results US

28-J an AT&T Q4 09 results US

28-J an Time Warner Cable Q4 09 results US

28-J an Taiwan Mobile Q4 09 results Asia

February

02-Feb Vodacom Q3 10 results EMEA

03-Feb Vodafone Q3 10 results Europe03-Feb Comcast Q4 09 results US

04-Feb Portugal Telecom Q4 09 results Europe

04-Feb TPSA Q4 09 results Europe

04-Feb Starhub Q4 09 results Asia

09-Feb Tele2 Q4 09 results Europe

09-Feb Singtel Q3 10 results Asia

10-Feb Telenor Q4 09 results Europe

10-Feb Sprint Q4 09 results US

10-Feb Millicom Q4 09 results Europe

11-Feb TeliaSonera Q4 09 results Europe11-Feb BT Group Q3 10 results Europe

11-Feb Mobistar Q4 09 results Europe

11-Feb Telstra Q2 10 results Asia

12-Feb Elisa Q4 09 results Europe

16-Feb Qwest Q4 09 results US

17-Feb Rogers Communications Q4 09 results Canada

17-Feb Qwest Q4 09 results US

18-Feb Swisscom Q4 09 results Europe

24-Feb Telekom Austria Q4 09 results Europe

24-Feb American Tower Q4 09 results US24-Feb Frontier Q4 09 results US

25-Feb France Telecom Q4 09 results Europe

25-Feb Deutsche Telekom Q4 09 results Europe

25-Feb Telecom Italia Q4 09 results Europe

25-Feb Telefonica O2 CR Q4 09 results Europe

26-Feb Telefonica Q4 09 results Europe

26-Feb Belgacom Q4 09 results Europe

March

03-Mar Bouygues Q4 09 results Europe03-Mar Turkcell Q4 09 results EMEA

09-Mar Inmarsat Q4 09 results Europe


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Definitions

Valuation Highlights:

EV =Market Cap +Net Debt +Minorities +Other liabilities Non-core assets Dividend payments

Operating free cash fl ows (OpFCF) =EBITDA adj Capex

Free cash flows (FCF) =OpFCF x (1 normalised tax rate)

Equity f ree cash flow (EFCF): =EBITDA adj - Cash Capex - Cash Interest - Minorities +Associates - normalised Tax

Market cap is adjusted for the resulting tax credits/liabilities

adj. P/E excludes pre- and post-tax exceptional items such as write downs, goodwill amortisation, discontinued operations, etc.

adj. P/E (pre licence amortisation) as above, but adj. net income excludes licence amortisation

Dividend yield =Gross DPS / price

Total shareholder return (TSR) =(Dividend +Share buyback) / Market cap adj. for forecast number of shares

Sector averages are based on aggregated values translated in euros at current FX rates and as such are affected by movements in exchange rates.

Sector "EPS" and "DPS" growth is earnings and dividend growth in .

Historic valuation is based on historic market cap.

Earnings momentum definitions:

1-month Absolute Earnings Momentum (%)=(#of upgrades of the 12-month forecasts - #of downgrades) / total number of estimates

3-month Absolute Earnings Momentum (%)=3-month average of the 1-month Absolute Earnings Momentum

Relative Earnings Momentum =Sector (Absolute momentum) Market (Absolute momentum)

Enterprise value (EV) is stripped of non-core assets and is based on forecast year-end values; the market cap, included in the calculation, is based on

our forecasts of the future number of shares outstanding and is reduced by the expected dividend payments

Earnings momentum chart compares the MSCI Europe Telecoms index vs. the broader MSCI Europe index. The earnings momentum is a three-month

average of the one-month earnings momentum estimates. I/B/E/S data


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Contacts in the EMEA region

Analyst 's name Locat ion Phone Emai l Stock coverage

Laura J anssens London +44-20-7568 2312 [email protected]

Nick Lyall London +44-20-7568 6332 [email protected]

Argiro Papadopoulou London +44-20-7567 6190 [email protected]

Keval Khiroya London +44-20-7568 6005 [email protected]

Violeta Katzova London +44-20-7568 3264 [email protected]

Marcus Baeumer Frankfurt +49-69-1369 8244 [email protected]

Bosco Ojeda Madrid +34-91-436 9078 [email protected]

Valentina Romitelli Milan +39-02-7210 0257 [email protected]

Alexander Wright London +44-20-7568 3240 [email protected]

Zoltan Palfi London +44 20 7567 168'2 [email protected]

Igor Goncharov Moscow +7-495-648 2364 [email protected]

J ohn Slettevold J ohannesburg +27-11-322 7317 [email protected]

We would like to thank Pratyush Kumar for his assistance.*

Footnote: *Pratyush Kumar is not employed by UBS.

Golden Telecom, Rostelecom, Comstar,

Uralsvyazinform, Volga Telecom, Siberia Telecom,

South Telecom, Northwest Telecom, Far East

Telecom, Center Telecom, MGTS, Sistema

MTN, Telcom

Fastweb

Belgacom, Mobistar, Telenet

Orascom Telecom, Turkcell, Bezeq, Partner

Comms., Cellcom, VimpelCom, MTS, Saudi

Telecom, Watnaiya, Qatar Telecom, Turk

Telekom, Zain KSA

Freenet, Iliad, QSC, Tiscali, United Internet,

Mobilcom, Millicom, Thus, KCOM

TPSA, Magyar Telekom, Telefonica O2 Czech

Republic, Cyfrowy Polsat, Telecom Egypt,

Multimedia Polska, Mobinil

Vodafone, Deutsche Telekom, KPN, Belgacom,

Mobistar, Telenet

France Telecom, Telecom Italia, BT, Cable &

Wireless, Virgin Media

Sonaecom, Zon Multimedia

Telenor, TeliaSonera, Tele2, Elisa, Swisscom

Telefonica, OTE, Portugal Telecom, Telekom

Austria


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