Telcom Sector
Ankita Agarwal
Jackie Gleason
Jason Stegall
1
•
•
•
•
Hold NIHD
Purchase 50 bps of AMT
Purchase 50 bps of T
Schedule research for AMX
Synopsis
2
• NIHD
Current 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,
andd Mexico.
M i
• Utilizing older technology
• Rabidly loyal user base,
base love the push-to-talk
Overview
4
Current Price: $36.90
R ti
Rating:
Hold
H ld
Price Target: $40.00
Dividend Yield: N/A
52 W k Range:
52-Week
R
35.55
35 55 - 46.32
46 32
Shares Outstanding (Diluted): 171
Million
M k t Capitalization:
Market
C it li ti
$6.19
$6 19 Billion
Billi
Current Numbers
5
Compared To S&P
Relative to S&P
500
P/Trailing E
P/Forward E
P/B
P/S
P/CF
High
Low
Median
Current
3.2
2.3
5.3
37
3.7
3.0
.43
.52
.8
.66
.3
1.3
1.2
2.5
17
1.7
1.1
1.1
1.1
.9
.99
.7
Absolute
Valuation
High
Low
Median
Current
A.
P/Forward E
P/S
P/B
P/EBITDA
P/CF
B.
34 3
34.3
5.6
16.8
20.68
5.6
C.
67
6.7
.5
1.2
.17
.5
D.
17 5
17.5
2.4
7.7
7.39
2.4
E.
13 0
13.0
1.0
1.8
3.51
1.0
Valuations
#Your
Target
Multiple
F.
15
1.8
4
6
2.4
*Your
Target
E, S, B,
etc/Share
G.
2 75
2.75
20.5
10
6.6
16.9
Your
Target
Price
(F x G)
H.
41 25
41.25
36.90
40.00
39.37
40.56
• Pros
• O
Opportunities
t iti in
i fast
f t growing
i emerging
i markets,
k t including
i l di
Brazil.
• Fundamentals are very inline with the research completed for
this analysis.
analysis
• Stable revenue growth.
• Cons
• Midle
Midlevel
el player
pla er in most of the markets,
markets no signs of dominance
anywhere.
• Relying on a low cost strategy, using older technology may
limit them to newer markets (such as smartphones).
• Not preforming to the level of some of its peers.
Pros and Cons
NII Holdings (NIHD)
Analyst: Jackie Gleason
Date: 7/4/2011
Year
2011E
2012E
Revenue
7,121
8,648
%Growth
Operating Income
Operating Margin
Interest and Other
Interest %of Sales
Taxes
Tax Rate
Net Income
21.5%
1,157
16.2%
%of Sales
Plus/(minus) Changes WC
%of Sales
2016E
10,089
16.7%
1,580
2014E
11,300
12.0%
1,582
15.0%
14.0%
2015E
12,655
12.0%
1,772
14.0%
13,921
10.0%
1,949
14.0%
2017E
15,174
9.0%
2,124
14.0%
2018E
16,388
8.0%
2,294
14.0%
2019E
17,535
7.0%
2,455
14.0%
2020E
18,587
6.0%
2,602
14.0%
2021E
19,423
4.5%
2,719
14.0%
(476)
(504)
(565)
(633)
(696)
(759)
(819)
(877)
(929)
(971)
-5.5%
-5.0%
-5.0%
-5.0%
-5.0%
-5.0%
-5.0%
-5.0%
-5.0%
-5.0%
320
401
430
407
456
501
546
590
631
669
699
40.0%
40.0%
40.0%
40.0%
40.0%
40.0%
40.0%
40.0%
40.0%
40.0%
40.0%
480
602
645
610
683
752
819
885
947
25.2%
7.2%
-5.4%
12.0%
10.0%
9.0%
8.0%
7.0%
10.5%
11.0%
11.0%
11.0%
12.0%
12.0%
12.0%
12.0%
13.0%
(204)
(202)
(191)
(214)
(239)
(263)
(287)
(310)
(332)
(352)
(367)
-2.9%
-2.3%
-1.9%
-1.9%
-1.9%
-1.9%
-1.9%
-1.9%
-1.9%
-1.9%
Capex %of sales
13.0%
Free Cash Flow
214
13.0%
12.5%
13.0%
1,645
13.0%
1,531
1,810
13.0%
1,821
1,973
1,967
2,130
2,104
2,280
2,230
4.5%
865
1,469
1,392
1,049
10.0%
1,261
1,243
6.0%
712
1,124
1,059
1,004
10.0%
926
DCF
2013E
-5.0%
Subtract Cap Ex
%Growth
17.1%
11.5%
4.5%
(356)
%Growth
Add Depreciation/Amort
1,479
Terminal Discount Rate =
Terminal FCF Growth =
2,416
13.0%
13.0%
13.0%
13.0%
2,525
-1.9%
2,525
13.0%
307
395
329
369
406
539
582
623
660
814
43.4%
28.6%
-16.5%
12.0%
10.0%
32.9%
8.0%
7.0%
6.0%
23.3%
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
2,640
4,093
6,732
3.39%
39%
61%
100%
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
13.1
14.0
4.0
4.2
10.5
11.2
3.2
3.4
SharesOutstanding
171
Current Price
$
Implied equity value/share $
Upside/(Downside) to DCF
36.90
39.37
6.7%
Debt
C h
Cash
Cash/share
Total Assets
Debt/Assets
Working Capital %of Growth
2,806
1666
1,666
9.74
7,763
36.1%
20%
DCF(Cont)
Terminal Value 12,155
9.8
10.4
2.8
3.0
Free Cash Yield
6.70%
Terminal P/E
11.6
Terminal EV/EBITDA
2.5
•
America Movil
•
•
•
•
•
•
Telcom Argentina
•
•
•
•
TSU
Brazil based GSM provider, allowing for international network access.
Cheaper/Larger Bandwidth networks than iDEN
Highest return of all options
Telefonica SA
•
•
•
•
TEO
Future LTE provider for Argentina
Better returns than NIHD
TIM Participacoes SA
•
•
•
•
•
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
TEF
Future LTE provider for Peru
Better returns than NIHD
Telmex
•
•
•
TMX
Another Carlos Slim venture
Mexican IPhone/IPad network.
Competition
• C
Currentt position
iti should
h ld be
b hold.
h ld
• Fundamentals Should be completed on some competitors
• Revisit position after comparative analysis is done on
competitors
Recommendation
• SBAC
Potential Holding
13
• Member of the Wireless sector of the Telcom industry.
• Leases 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
Castle
Overview
14
Currentt Price:
C
P i $37.40
$37 40
Rating: Do Not Buy
g $$33.00
Price Target:
Dividend Yield: N/A
52-Week Range: $32.76 - $44.44
Shares Outstanding (Diluted): 115
Million
Market Capitalization:
p
$3.87 Billion
Net Debt $3.2 Billion
Current Numbers
45
40
35
30
15
• Pros
• Management team has expertise in real estate and
acquisitions
• Company is poised to take advantage of mobile data
growth
• Cons
C
• Management team lacks telecom operational experience
• Terrible capital structure
• Significantly smaller and less efficient than than peers
Pros and Cons
U.S. Based Towers as of June 30, 2011
U.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 2010
Company SBA Communications American Tower Crown Castle YTD June 2011 69.5% 70.2% 76.1% 74.7% 69.1% 70.6% Operating Margin 2010
Company SBA Communications American Tower Crown Castle 11.9%
37.7%
30.6%
Comparison to Peers
YTD June 2011 15.1% 37.8% 33.4% R a ti o A na l y si s f or S B A C om m u ni c a ti on s L ow
0
0.4 5
0 .1
12 .4
M e d ia n
6 .9 1 5.1 6 5 .5 37 .6 H ig h
3 8.3 42 .32 9.9 37 9.7 C urrent
1 2.8
1 0.6
6.0
2 4.2
H ig h
L ow
M e d ia n
C urrent
A b s o llu te V a llu es
P ri ce
P ri ce
P ri ce
P ri ce
/
/
/
/
B o ok
E B IT D A
S a le s
C a sh F low
R el a tiv e to S & P 5 0 0
P ri ce
P ri ce
P ri ce
P ri ce
/
/
/
/
B o ok
E B IT D A
S a le s
C a sh F low
1 6.9 5 .6 4 7.8 3 4.2 R el a tiv e to A m er ic a n T o w er
P ri ce / B o ok
P ri ce / E B IT D A
H ig h
P ri ce / S a le s
P ri ce / C a sh F low
2.3
2 .0 1 1.4 56
5.6
0.1 9
0 .1
0 .7
7
L ow
1.0 4 0 .7 1 .5 5
0 .7 4
0.7
11
1.1
6.6 3 .1 3 1.7
2.3 Sou rc e : Th om s on Rue t e r s Ba se lin e , Au gu st 1 4 , 2 0 1 1
C urrent
1 .9 H ig h
B o ok
E B IT D A
S a le s
C a sh F low
M e d ia n
6.5
1 .8 5
5.2
2.8
0 .3
/
/
/
/
L ow
2 .9 2.3 1 4 .8 4 .1 9.7 R el a tiv e to C ro w n C a stl e
P ri ce
P ri ce
P ri ce
P ri ce
0
0.0 8
0 .1
1 .7
M e d ia n
0 .1
0.0 9
0 .1
0 .9
C urrent
2 .0 1.0 3 0 .8 1 .5 2.6
1 .1 0
1.0
1.4
Comparison to Peers
Valuations
DCF
20
DO NOT BUY
• The company’s price is buoyed by the optimism
surrounding the cellular market.
• The
h capital
i l structure is
i terrible.
ibl
• The company has not posted a positive EPS.
Recommendation
• AT&T (T) 50 bps
• American Tower Corporation (AMT) 50 bps
Purchases
22
• T
Purchase 1
23
• Provides Access To The Integrated
g
Market.
• Stable, well known company adds stability and network
effects
• iPod
i d andd iPhone
i h
exposure
• Rolling out LTE
Overview
24
Current Price: $28.22
Rating: Buy
Price Target: $33
Dividend Yield: 1.72
1 72
52-Week Range: 26.20 – 31.94
Shares Outstanding (Diluted):
M k t Capitalization:
Market
C it li ti
$167.23
$167 23 Billi
Billion
Current Numbers
25
Relative to S&P
500
P/Trailing E
P/Forward E
P/B
P/S
P/CF
High
Low
Median
Current
1.1
1.2
1.6
2.3
.9
.49
.57
.6
1.0
.4
.83
.86
.7
1.3
.6
.99
.93
.7
1.2
.6
Valuations
26
• AMT
Purchase 2
27
• Member of the Wireless sector of the Telecom industry
• Rental and Management segment leases tower space to
wireless
i l carriers
i
• Network Development Services segment provides towerrelated services, such as site acquisition, zoning and
permitting services
• Presence in 8 countries in Asia, Latin America and
EMEA
Overview
28
Key Stats
Current Price: $50.50
Rating: Buy
Price Target: $61.00
Dividend Yield: N/A
52-Week Range:
g 45.14 - 56.84
Market Capitalization: $20.36 Billion
Current Numbers
29
• Rental & Management Revenue increased by 28%
• Diluted EPS $0.29/share > $0.24/share estimated
• Domestic growth 13.4% yoy, driven by AT&T and
Verizon’s LTE network investment
• International Growth 94% yoy, driven by acquisitions in
Latin
i America,
A
i Asia
A i & EMEA,
A 27%
2 % off rentall revenue
• REIT conversion on track, no change estimated in the
investment grade
nd
2 Q Result Highlights
30
Valuations
• Pros
• Opportunities in fast growing emerging markets
• Conservative financial position, strong fundamentals, most
stable tower company
p y
• Diversification in eight countries
• REIT status would result in dividend payout
• 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 Cons
DCF
DCF (Cont..)
(Cont )
• One year target price $60.83 if successfully gets REIT
status without downgrade
g
((18% upside)
p
)
• One year target price $47.04 if unsuccessful to get REIT
status (9% downside)
• Recommendation
d i to buy
b 50bps,
0b andd keep
k
an eye for
f fresh
f h
information about REIT conversion
• Revisit position in the next quarter
Recommendation
•
•
•
•
Hold NIHD
Purchase 50 bps of AMT
Purchase 50 bps of T
Schedule research for AMX
Recap
36
Questions?
37