telcom sector - fisher college of business | su11.pdf · • member of the wireless sector of the...
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Telcom SectorTelcom SectorAnkita AgarwalAnkita AgarwalJackie GleasonJason Stegall
11
• Hold NIHD• Hold NIHD• Purchase 50 bps of AMT• Purchase 50 bps of TPurchase 50 bps of T• Schedule research for AMX
Synopsis 2Synopsis 2
• NIHD
Current Holdings 3Current Holdings 3
• Member of the Wireless sector of the Telecom industry.• Provider of Nextel Service in South American markets
and Mexico.• Currently rolling out 3G in markets such as Peru, Brazil,
d M iand Mexico.• Utilizing older technology• Rabidly loyal user base love the push-to-talkRabidly loyal user base, love the push-to-talk
Overview 4Overview 4
Current Price: $36.90R ti H ldRating: HoldPrice Target: $40.00Dividend Yield: N/A52 W k R 35 55 46 3252-Week Range: 35.55 - 46.32Shares Outstanding (Diluted): 171 MillionM k t C it li ti $6 19 BilliMarket Capitalization: $6.19 Billion
Current Numbers 5Current Numbers 5
Compared To S&PCompared To S&P
Relative to S&P 500
High Low Median Current
P/Trailing E 3.2 .43 1.3 1.1 P/Forward E 2.3 .52 1.2 1.1 P/B 5.3 .8 2.5 .9 P/S 3 7 6 1 7 9P/S 3.7 .6 1.7 .9P/CF 3.0 .3 1.1 .7
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 34 3 6 7 17 5 13 0 15 2 75 41 25P/Forward E 34.3 6.7 17.5 13.0 15 2.75 41.25P/S 5.6 .5 2.4 1.0 1.8 20.5 36.90P/B 16.8 1.2 7.7 1.8 4 10 40.00P/EBITDA 20.68 .17 7.39 3.51 6 6.6 39.37P/CF 5.6 .5 2.4 1.0 2.4 16.9 40.56
ValuationsValuations
• ProsO t iti i f t i i k t i l di• Opportunities in fast growing emerging markets, including Brazil.
• Fundamentals are very inline with the research completed for this analysisthis analysis.
• Stable revenue growth.• Cons
• Midle el pla er in most of the markets no signs of dominance• Midlevel player in most of the markets, no signs of dominance anywhere.
• Relying on a low cost strategy, using older technology may limit them to newer markets (such as smartphones).limit them to newer markets (such as smartphones).
• Not preforming to the level of some of its peers.
Pros and ConsPros and Cons
NII Holdings (NIHD)
Analyst: Jackie Gleason Terminal Discount Rate = 11.5%Date: 7/4/2011 Terminal FCF Growth = 4.5%
Year 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E
Revenue 7,121 8,648 10,089 11,300 12,655 13,921 15,174 16,388 17,535 18,587 19,423 % Growth 21.5% 16.7% 12.0% 12.0% 10.0% 9.0% 8.0% 7.0% 6.0% 4.5%
Operating Income 1,157 1,479 1,580 1,582 1,772 1,949 2,124 2,294 2,455 2,602 2,719 Operating Margin 16.2% 17.1% 15.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0%
Interest and Other (356) (476) (504) (565) (633) (696) (759) (819) (877) (929) (971) Interest % of Sales -5.0% -5.5% -5.0% -5.0% -5.0% -5.0% -5.0% -5.0% -5.0% -5.0% -5.0%
Taxes 320 401 430 407 456 501 546 590 631 669 699Taxes 320 401 430 407 456 501 546 590 631 669 699 Tax Rate 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0%
Net Income 480 602 645 610 683 752 819 885 947 1,004 1,049 % Growth 25.2% 7.2% -5.4% 12.0% 10.0% 9.0% 8.0% 7.0% 6.0% 4.5%
Add Depreciation/Amort 712 865 1,059 1,243 1,392 1,531 1,821 1,967 2,104 2,230 2,525 % of Sales 10.0% 10.0% 10.5% 11.0% 11.0% 11.0% 12.0% 12.0% 12.0% 12.0% 13.0%Plus/(minus) Changes WC (204) (202) (191) (214) (239) (263) (287) (310) (332) (352) (367) % of Sales -2.9% -2.3% -1.9% -1.9% -1.9% -1.9% -1.9% -1.9% -1.9% -1.9% -1.9%Subtract Cap Ex 926 1,124 1,261 1,469 1,645 1,810 1,973 2,130 2,280 2,416 2,525 Capex % of sales 13.0% 13.0% 12.5% 13.0% 13.0% 13.0% 13.0% 13.0% 13.0% 13.0% 13.0%
Free Cash Flow 214 307 395 329 369 406 539 582 623 660 814 % Growth 43.4% 28.6% -16.5% 12.0% 10.0% 32.9% 8.0% 7.0% 6.0% 23.3%
DCFDCF
NPV of Cash Flows 2,640 39%NPV of terminal value 4,093 61% Terminal Value 12,155 Projected Equity Value 6,732 100%Free Cash Flow Yield 3.39% Free Cash Yield 6.70%
Current P/E 13.1 10.5 9.8 Terminal P/E 11.6 Projected P/E 14.0 11.2 10.4 Current EV/EBITDA 4.0 3.2 2.8 Terminal EV/EBITDA 2.5 Projected EV/EBITDA 4.2 3.4 3.0
Shares Outstanding 171
Current Price 36.90$ Implied equity value/share 39.37$ Upside/(Downside) to DCF 6.7%
Debt 2,806 C h 1666Cash 1,666 Cash/share 9.74 Total Assets 7,763
Debt/Assets 36.1%Working Capital % of Growth 20%
DCF(Cont)DCF(Cont)
• America Movil• AMX• Largest Mexican cell phone provider• Owned by Carlos Slim, giving it access to a huge source of capital• Smaller growth than NIHD• More advanced network than NIHD
• Telcom ArgentinaTEO• TEO
• Future LTE provider for Argentina• Better returns than NIHD
• TIM Participacoes SA• TSU• Brazil based GSM provider, allowing for international network access.• Cheaper/Larger Bandwidth networks than iDEN• Cheaper/Larger Bandwidth networks than iDEN• Highest return of all options
• Telefonica SA• TEF• Future LTE provider for Peru• Better returns than NIHD
• Telmex• TMX• Another Carlos Slim venture• Mexican IPhone/IPad network.
CompetitionCompetition
C t iti h ld b h ld• Current position should be hold. • Fundamentals Should be completed on some competitors• Revisit position after comparative analysis is done onRevisit position after comparative analysis is done on
competitors
RecommendationRecommendation
• SBAC
Potential Holding 13Potential Holding 13
• Member of the Wireless sector of the Telcom industry.• Leases towers and other communications sites to wirelessLeases towers and other communications sites to wireless
carriers• 3 – 5 year leases with escalator clauses• Lease the same tower to multiple tenants• Much smaller than competitors American Tower and Crown
CastleCastle
Overview 14Overview 14
C t P i $37 40Current Price: $37.40Rating: Do Not BuyPrice Target: $33.00g $Dividend Yield: N/A52-Week Range: $32.76 - $44.44
45Shares Outstanding (Diluted): 115 MillionMarket Capitalization: $3.87 Billion 35
40
45
pNet Debt $3.2 Billion
30
Current Numbers 15Current Numbers 15
• Pros• Management team has expertise in real estate and
acquisitionsacquisitions• Company is poised to take advantage of mobile data
growthC• Cons• Management team lacks telecom operational experience• Terrible capital structureTerrible capital structure• Significantly smaller and less efficient than than peers
Pros and ConsPros and Cons
U.S. Based Towers as of June 30, 2011U.S. Based Towers as of June 30, 2011
Company U.S. Towers
SBA Communications Corp. 8,988
Crown Castle Inc. 23,800
American Tower Corp. 21,358
Source: Company 10‐Q filings
Margin Comparisons
Gross Margin Operating Margin
2010 YTD June 2010YTD June
Company 2011 Company 2011 SBA Communications 69.5% 70.2% SBA Communications 11.9% 15.1% American Tower 76.1% 74.7% American Tower 37.7% 37.8%
Crown Castle 69.1% 70.6% Crown Castle 30.6% 33.4%
Comparison to PeersComparison to Peers
Ratio Ana ly sis for SBA C om munication s Ab l V lAb s olu te V alu es Hig h Low M edia n C urrent Pri ce / Bo ok 3 8.3 0 6 .9 1 2.8Pri ce / E BIT D A 42 .32 0.4 5 1 5.1 6 1 0.6Pri ce / Sa le s 9.9 0 .1 5 .5 6.0Pri ce / Cash F low 37 9.7 12 .4 37 .6 2 4.2
Rel ative to S & P 500
Hig h Low M edia n C urrent Pri ce / Bo ok 1 6.9 0 2 .9 6.5Pri ce / E BIT D A 5 .6 4 0.0 8 2.3 1 1 .8 5Pri ce / Sa le s 7.8 0 .1 4 .8 5.2Pri ce / Cash F low 3 4.2 1 .7 4 .1 2.8 Rel ative to A m er ic an T ow er Hig h Low M edia n C urrent Pri ce / Bo ok 9.7 0 .3 1 .9 2.3Pri ce / E BIT D A 2 .0 1 0.1 9 1.0 4 0 .7 4Pri ce / Sa le s 1.4 0 .1 0 .7 0.7Pri ce / Cash F low 5 6 0 7 1 5 1 1Pri ce / Cash F low 5.6 0 .7 1 .5 1.1 Rel ative to C row n C astl e Hig h Low M edia n C urrent Pri ce / Bo ok 6.6 0 .1 2 .0 2.6Pri ce / E BIT D A 3 .1 3 0.0 9 1.0 3 1 .1 0Pri ce / Sa le s 1.7 0 .1 0 .8 1.0
Comparison to PeersPri ce / Cash F low 2.3 0 .9 1 .5 1.4
Sou rc e : Th oms on Rueters Ba se lin e , Au gu st 14 , 2011
Comparison to Peers
ValuationsValuations
DCF 20DCF 20
DO NOT BUY• The company’s price is buoyed by the optimism
surrounding the cellular market.h i l i ibl• The capital structure is terrible.
• The company has not posted a positive EPS.
RecommendationRecommendation
• AT&T (T) 50 bps• American Tower Corporation (AMT) 50 bps
Purchases 22Purchases 22
• T
Purchase 1 23Purchase 1 23
• Provides Access To The Integrated Market.g• Stable, well known company adds stability and network
effectsi d d i h• iPod and iPhone exposure
• Rolling out LTE
Overview 24Overview 24
Current Price: $28.22Rating: BuyPrice Target: $33Dividend Yield: 1 72Dividend Yield: 1.7252-Week Range: 26.20 – 31.94Shares Outstanding (Diluted):M k t C it li ti $167 23 BilliMarket Capitalization: $167.23 Billion
Current Numbers 25Current Numbers 25
Relative to S&P 500
High Low Median Current
P/Trailing E 1.1 .49 .83 .99P/Forward E 1.2 .57 .86 .93P/B 1.6 .6 .7 .7P/S 2.3 1.0 1.3 1.2P/CF .9 .4 .6 .6
Valuations 26Valuations 26
• AMT
Purchase 2 27Purchase 2 27
• Member of the Wireless sector of the Telecom industry• Rental and Management segment leases tower space to
i l iwireless carriers• Network Development Services segment provides tower-
related services, such as site acquisition, zoning andrelated services, such as site acquisition, zoning and permitting services
• Presence in 8 countries in Asia, Latin America and EMEA
Overview 28Overview 28
Key StatsCurrent Price: $50.50Rating: BuyPrice Target: $61.00Dividend Yield: N/A52-Week Range: 45.14 - 56.84gMarket Capitalization: $20.36 Billion
Current Numbers 29Current Numbers 29
• Rental & Management Revenue increased by 28%• Rental & Management Revenue increased by 28%• Diluted EPS $0.29/share > $0.24/share estimated• Domestic growth 13.4% yoy, driven by AT&T andDomestic growth 13.4% yoy, driven by AT&T and
Verizon’s LTE network investment• International Growth 94% yoy, driven by acquisitions in
i A i A i & A 2 % f lLatin America, Asia & EMEA, 27% of rental revenue• REIT conversion on track, no change estimated in the
investment gradeinvestment grade
2nd Q Result Highlights 302 Q Result Highlights 30
ValuationsValuations
• Pros• Opportunities in fast growing emerging markets• Conservative financial position, strong fundamentals, most
stable tower companyp y• Diversification in eight countries• REIT status would result in dividend payout
• Cons• Cons• Too much dependency on revenue from AT&T and Verizon• International Economies difficult to figure out• Debt Refinancing risk, most debt maturing in 2014• Carrier consolidation may impact the growth
Pros and ConsPros and Cons
DCFDCF
DCF (Cont )DCF (Cont..)
• One year target price $60.83 if successfully gets REIT status without downgrade (18% upside)g ( p )
• One year target price $47.04 if unsuccessful to get REIT status (9% downside)
d i b 0b d k f f h• Recommendation to buy 50bps, and keep an eye for fresh information about REIT conversion
• Revisit position in the next quarterRevisit position in the next quarter
RecommendationRecommendation
• Hold NIHD• Hold NIHD• Purchase 50 bps of AMT• Purchase 50 bps of TPurchase 50 bps of T• Schedule research for AMX
Recap 36Recap 36
Questions? 37Questions? 37