Company Presentation
May 31, 2011
Tim Williamson
Jiang Zhu
Agenda
•
•
•
•
•
•
Sector Summary
NII Holding Analysis
Verizon Analysis
VimpelCom Analysis
Conclusion
Recap of Recommendations
Sector Holdings
Current SIM Weighting
Telecom
4.19%
Target SIM weighting
Telecom
2.98%
Target Prices
Company
Current Price
Target Price
Dividend
Upside or Downside
NIHD
$43.41
$58
N/A
+34%
VZ
$36.67
$35
5.3%
-5%
VIP
$13.79
$21
2.1%
+53%
NIHD Overview
• Founded in 1995 as Nextel
International, Inc. in Virginia and
changed its name to NII Holdings,
Inc. in December 2001
• Providing integrated wireless
communication services only in
Latin American markets
• Currently operating in Argentina,
Brazil, Mexico, Peru and Chile
NIHD Business Analysis
• Market Cap of $7.12b
• Cyclical; Beta of 1.92
• Company in good shape
–
–
–
–
Relatively high growth
Relatively high leverage: D/A=59%
High liquidity: Current ratio=2.25
High efficiency: Gross margin=60%
NII’s Segment Information
Handsets in commercial service
(in thousands)
Country
2010
2009
Brazil
3,319
2,483
2009 (inside) & 2010 (outside)
segment revenue composition
6%
12%
6%
10%
Mexico
3,361
2,987
Argentina
1,154
1,030
Peru
1,128
841
Chile
65
44
Total
9,027
7,385
40%
46%
38%
42%
Brazil
Mexico
Argentina
Peru
Chile
NIHD Financial Analysis
Sales Growth Rate
Sales
45.00%
10,000,000
9,000,000
40.00%
8,000,000
35.00%
7,000,000
30.00%
6,000,000
25.00%
5,000,000
20.00%
4,000,000
15.00%
3,000,000
10.00%
2,000,000
5.00%
1,000,000
0.00%
0
2006
2007
2008
2009
2010
2011E 2012E 2013E
2007
2008
2009
2010
2011E
2012E
2013E
NIHD DCF Analysis
Discount rate: 11%
Terminal FCF growth: 4.75%
Target Price: $55.25
Undervalued 27%
NIHD Sensitivity Analysis
Terminal FCF Growth
NIHD Price
Discount Rate
9.00%
9.50%
10.00% 10.50% 11.00% 11.50% 12.00%
3.00%
65.27
59.77
55.06
50.99
47.44
44.31
41.54
3.50%
69.25
63.00
57.72
53.2
49.3
45.89
42.89
4.00%
74.03
66.82
60.82
55.75
51.42
47.67
44.40
4.50%
79.87
71.40
64.49
58.73
53.87
49.71
46.12
5.00%
87.17
77.01
68.89
62.25
56.73
52.07
48.08
5.50%
96.55
84.01
74.24
66.48
60.11
54.82
50.34
NIHD Valuation Analysis
Absolute
Valuation
High
Low
B.
C.
A.
Median Current
D.
#Your
Target
Multiple
E.
F.
*Your
Target E,
S, B,
etc/Share
G.
Your
Target
Price
(F x G)
H.
P/Forward E 34.3
6.7
17.6
15.3
17
2.6
44.2
P/S
5.6
0.5
2.5
1.2
2
37.9
75.8
P/B
16.8
1.2
7.9
2.2
5
16.4
82
P/EBITDA
P/CF
20.86
32.8
0.17
2.7
7.84
12.4
4.49
7.5
6
11
9.3
6.6
55.8
72.6
Average price based on multiples: $66
Weighted price under DCF and multiple method (75% on DCF & 25% on multiples):
Final Target Price $58 (undervalued 34%)
Potential Catalysts & Risks
Catalysts
• Global economic recovery
Risks
• Exchange rates
• Growth of emerging markets • Possible double dip
recession
• Expansion of 3G and 4G
markets
• Regulation limit by foreign
governments
Foreign currency to USD
Argentine Peso to USD
Verizon Overview
Currently the largest mobile provider in the U.S.
Second biggest company in Telecom-Domestic industry
Two major business lines:
• Domestic wireless
Offers voice and data services in addition to device sales for use on its vast network that covers
292 million Americans.
• Wireline
Provides voice, Internet, broadband, IP network, long distance, and various other services to
consumers in the United States, as well as to businesses, governments, and carriers both in the
U.S. and in 150 countries around the globe.
VZ Business Analysis
• Market Cap of $103.6b
• Beta: 0.57
• Company has reached mature phase
– Growth rate of wireless segment is declining
– Wireline provides little to no growth prospects
• Economic factors affecting potential growth
– GDP growth
– Consumer confidence
– Unemployment rate
VZ DCF Model
Discount rate: 9.5%
Terminal FCF growth: 1%
Target Price: $35.70
Overvalued 2.65%
VZ Valuation Analysis
Absolute
Valuation
High
Low
Median
Current
Target
Multiple
Target
Value
Target Share
Price
P/Forward E
17.3
8.2
12.7
14.13
14.12
2.35
33.23
P/S
2.1
0.7
1.2
0.99
0.96
37.15
35.66
P/B
3.9
1.5
2.4
2.71
2.6
13.64
35.46
P/EBITDA
5.85
2.8
3.76
3.75
3.7
9.6
35.52
P/CF
6.7
3.1
4.3
4.6
4.3
8.1
34.83
Average Price: $35
Weighted Price under DCF and Multiple method (75% on DCF & 25% on multiples):
Final Target Price $35 (overvalued 5%)
VZ Summary
Catalysts:
Risks:
•
•
•
•
4G LTE rollout is ahead of
schedule
Apple iPhone now available on
Verizon network
Smartphone penetration and
data sales continue to climb
•
•
Wireline segment is in a state of
serious decline moving toward
obsolesence
Regulatory environment setup to
keep competition in the
marketplace
Wireless segment is moving
toward the mature stage
VimpelCom Ltd (VIP)
• Market Cap: 17.81B
• Industry: Wireless Communications
• Provides voice and data services mainly in
the nations of the former Soviet Union, but
also in Europe, Asia, and Africa
• Second largest mobile carrier in Russia
with better growth prospects than MTS
• Went public on NYSE in 2010
VIP
Relative to
S&P 500
P/Trailing E
High
Low
Median
Current
.96
.63
.75
.74
P/Forward E
.6
.59
.6
.6
P/B
1.0
.1
.8
.7
P/S
1.6
.2
.2
1.6
P/CF
1.1
.1
.2
1.1
VIP
Discount rate: 14%
Terminal FCF growth: 4%
Target Price: $23.24
Undervalued 68.56%
VIP
Absolute
Valuation
High
Low
Median Current
Target Target E,
Multiple
S, B,
etc/Shar
e
12
1.38
Target
Price
(F x G)
P/Forward E
13.7
9.5
11.0
10.4
P/S
2.1
.3
.3
2.1
2.1
10.28
21.59
P/B
2.1
.2
1.7
1.6
2
8.96
17.92
16.56
Average Price: $19
Weighted Price under DCF and Multiple method (75% on DCF & 25% on multiples):
$21 (undervalued 53%)
Stocks in Comparison
Conclusion
Options:
• Sell 119 bps of NIHD to take SIM holding to 3%
Or
• Allocate some of the excess funds back to Telecom and:
 Keep NIHD at current weight
Or
 Take SIM to 400 bps and hold 200 each of NIHD and VIP
Q&A