Telecom Company Presentation
Elliot Palmer
Eric Richmond
Agenda
• Sector Overview
• Company Analysis
– AMT
– AT&T
– NIHD (NII Holdings)
• Recommendation
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%
Sector Performance
Telecom Performance
MTD
QTD
YTD
S&P 500
-1.29%
4.17%
4.17%
Telecom Services
-1.87%
-3.44%
-3.44%
Relative Performance
-0.58%
-7.61%
-7.61%
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
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
Financial Analysis
AMT
Financial Analysis
AMT
American Tower Corp. Analysis
Important Ratios
Return on Assets (TTM)
Return on Equity (TTM)
Gross Margin (TTM)
Net Profit Margin (TTM)
Effective Tax Rate (TTM)
LT Debt to Equity (MRQ)
Total Debt to Equity (MRQ)
Interest Coverage (TTM)
Current Ratio (MRQ)
Management Effectiveness
Company
Industry
3.96
6.56
10.94
11.1
Profitability Ratios
76.1
40.9
18.81
11.38
32.82
28.74
Financial Strength
157.43
36.59
159.57
45.21
2.8
0.02
2.59
1.34
Sector
5.63
9.9
S&P 500
6.01
17.77
47.3
10.18
30.55
31.63
11.29
19.88
41.12
52.8
0.08
1.23
115.27
164.6
16.74
0.98
Stock Valuation
American Tower Corp. Sensitivity
Relative to Industry
P/Trailing E
P/Forward E
P/B
P/S
P/CF
High
43.3
27.8
11.2
16.9
10.9
Low
.35
.19
.1
.3
.6
Median
10.9
5.5
1.8
4.7
5.3
Current
NM
NM
3.3
11.0
3.7
Relative to S&P 500
P/Trailing E
P/Forward E
P/B
P/S
P/CF
High
40.7
29.7
2.7
10.9
6.5
Low
2.6
2.6
.0
.2
.4
Median
4.4
5.5
1.1
6.9
2.9
Current
3.7
3.4
2.6
8.3
2.6
Absolute
Valuation
High
A.
Low
B.
Median
Current
D.
E.
C.
#Your Target
Multiple
*Your Target
E, S, B,
etc/Share
Your Target Price
(F x G)
G.
H.
F.
P/Forward E
447.4
41.5
76.9
48.6
40
1.31
52.40
P/S
18.5
.2
7.7
10.8
7.7
6.30
48.51
P/B
6.2
.1
3.1
5.9
4.5
10.4
46.80
P/EBITDA
31.98
1.7
15.13
17.26
15
4.98
61.20
P/CF
72.6
4
29.5
25.5
25.5
2.34
59.67
Average
53.72
American Tower Corp. DCF
American Tower Corp (AMT)
Analyst: Elliot Palmer
Date: 3/7/2011
Year
2010E
Revenue
2011E
1,985,335
2,406,441
784,378
1,039,286
% Growth
21.2%
Operating Income
Operating Margin
39.5%
Interest and Other
228,353
Interest % of Sales
182,489
Tax Rate
372,936
33.0%
523,089
% Growth
Add Depreciation/Amort
476,480
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
Free Cash Flow
33.0%
859,946
40.0%
9.0%
487,089
33.0%
33.0%
40.0%
9.0%
33.0%
9.0%
33.0%
33.0%
1,655,241
27.1%
9.7%
18.0%
15.0%
15.0%
15.0%
13.0%
12.0%
5.0%
701,750
842,101
993,679
1,142,730
1,314,140
1,511,261
1,707,725
1,912,652
2,008,284
24.0%
24.0%
24.0%
24.0%
24.0%
24.0%
24.0%
24.0%
24.0%
24.0%
24.0%
(37,118)
(61,688)
(74,026)
(87,350)
(100,453)
(115,521)
(132,849)
(150,119)
(168,134)
(176,540)
-1.2%
-1.5%
-2.1%
-2.1%
-2.1%
-2.1%
-2.1%
-2.1%
-2.1%
-2.1%
-2.1%
297,800
360,966
438,594
526,313
621,049
714,206
821,337
944,538
1,067,328
1,195,407
146,437
15.0%
15.0%
15.0%
15.0%
15.0%
15.0%
15.0%
15.0%
15.0%
15.0%
1.8%
527,846
702,551
866,095
970,530
1,145,225
1,317,009
1,514,560
1,741,744
1,968,171
2,204,352
3,423,309
33.1%
23.3%
12.1%
18.0%
15.0%
15.0%
15.0%
13.0%
12.0%
55.3%
Terminal Value
55,299,615
Free Cash Yield
6.19%
31.8
18,619,732
25,404,381
73%
100%
2.44%
57.9
68.1
41.3
48.6
32.5
38.2
29.6
34.9
25.1
29.5
21.8
25.7
Terminal P/E
Current EV/EBITDA
Projected EV/EBITDA
20.6
23.6
16.1
18.4
13.1
15.0
11.6
13.3
9.8
11.2
8.5
9.8
Terminal EV/EBITDA
Debt
Cash
Cash/share
406,948
$
$
53.07
62.43
17.6%
4,804,360
414,600
1.02
33.0%
1,738,003
Current P/E
Projected P/E
Current Price
Implied equity value/share
Upside/(Downside) to DCF
9.0%
856,031
40.3%
27%
Shares Outstanding
40.0%
753,107
815,268
1,477,894
5.0%
3,347,141
717,244
727,918
1,307,870
12.0%
40.0%
9.0%
2020E
8,367,852
3,187,753
640,397
644,175
1,137,279
13.0%
40.0%
9.0%
2019E
7,969,383
2,846,208
566,723
560,152
988,938
15.0%
2,518,768
492,802
2018E
7,115,520
577,546
6,784,648
Free Cash Flow Yield
33.0%
728,768
40.0%
9.0%
423,556
15.0%
2,190,233
428,524
2017E
6,296,921
(23,770)
% Growth
NPV of Cash Flows
33.0%
15.0%
40.0%
9.0%
2016E
5,475,583
1,904,551
372,629
358,945
664,627
18.0%
40.0%
10.1%
2015E
4,761,377
1,656,131
315,788
327,562
2014E
20.0%
44.0%
10.7%
5.0%
4,140,327
1,403,501
294,730
257,850
40.0%
Net Income
21.5%
43.2%
11.5%
Terminal FCF
Growth =
2013E
3,508,752
1,287,341
257,921
11.5%
Taxes
NPV of terminal value
Projected Equity Value
2012E
2,923,960
Terminal Discount
Rate =
11.1
10-year
17.0
9.3
American Tower Corp. Sensitivity
Sensitivity Analysis
Terminal Growth Rate
Terminal Discount Rate
10%
10.25%
11%
10.75%
11%
11.25%
12%
11.75%
12%
12.25%
3.50%
$ 69.54
$ 66.30
$ 63.31
$ 60.53
$ 57.95
$ 55.55
$ 53.32
$ 51.23
$ 49.27
$ 47.43
3.75%
$ 71.74
$ 68.29
$ 65.12
$ 62.18
$ 59.46
$ 56.94
$ 54.59
$ 52.40
$ 50.35
$ 48.43
4.00%
$ 74.12
$ 70.44
$ 67.07
$ 63.96
$ 61.08
$ 58.42
$ 55.95
$ 53.65
$ 51.50
$ 49.49
4.25%
$ 76.70
$ 72.78
$ 69.18
$ 65.87
$ 62.82
$ 60.01
$ 57.40
$ 54.98
$ 52.72
$ 50.62
4.50%
$ 79.52
$ 75.31
$ 71.46
$ 67.94
$ 64.70
$ 61.71
$ 58.96
$ 56.40
$ 54.03
$ 51.82
4.75%
$ 82.61
$ 78.07
$ 73.94
$ 70.17
$ 66.72
$ 63.55
$ 60.63
$ 57.93
$ 55.42
$ 53.10
5.00%
$ 86.01
$ 81.10
$ 76.65
$ 72.61
$ 68.91
$ 65.53
$ 62.43
$ 59.56
$ 56.92
$ 54.46
5.25%
$ 89.77
$ 84.43
$ 79.61
$ 75.26
$ 71.30
$ 67.68
$ 64.37
$ 61.33
$ 58.52
$ 55.93
5.50%
$ 93.94
$ 88.11
$ 82.88
$ 78.16
$ 73.90
$ 70.02
$ 66.48
$ 63.23
$ 60.25
$ 57.50
5.75%
$ 98.60
$ 92.19
$ 86.48
$ 81.36
$ 76.74
$ 72.56
$ 68.76
$ 65.29
$ 62.12
$ 59.20
6.00%
$ 103.85
$ 96.76
$ 90.49
$ 84.89
$ 79.88
$ 75.35
$ 71.26
$ 67.54
$ 64.14
$ 61.02
Average of Shaded Area
$ 60.98
Table Max
$ 103.85
Average of Entire Table
$ 67.11
Table Min
$ 47.43
American Tower Corp. Summary
• Recommendation: Do Not Buy
• Not Best in Sector
• High multiple of 57+
• Lower potential upside
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
Financial Analysis
AT&T
Financial Analysis
AT&T
AT&T Valuation
Relative to Industry
High
Low
Median
Current
P/Trailing E
P/Forward E
P/B
P/S
P/CF
1.2
1.2
2.7
1.8
1.5
.78
.73
.7
1.1
.9
.96
.96
.9
1.4
1.2
.87
.84
.8
1.1
1.0
Relative to S&P 500
High
Low
Median
Current
P/Trailing E
P/Forward E
P/B
P/S
P/CF
1.1
1.2
1.6
2.3
.9
.49
.57
.6
1.0
.4
.82
.86
.7
1.4
.6
.77
.80
.6
1.0
.5
Absolute
Valuation
High
A.
Low
B.
Median
C.
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
19.7
9.1
13.6
11.4
12.0
2.28
27.36
P/S
3.3
1.2
2.0
1.3
1.5
21.52
32.28
P/B
5.4
1.4
2.1
1.4
1.5
19.85
29.77
P/EBITDA
9.46
3.07
4.78
4.49
4.45
6.19
27.54
P/CF
9.8
3.9
6.3
4.9
5.2
5.67
29.50
AT&T DCF
AT&T - T
Analyst: Eric Richmond
1/25/2011
Terminal Discount Rate =
Terminal FCF Grow th =
Year
2010E
Revenue
124,392
% Grow th
2011E
126,992
2.1%
Operating Income
19,715
Operating Margin
Interest and Other
Interest % of Sales
Taxes
131,129
3.3%
22,643
2013E
135,719
3.5%
23,751
2014E
140,469
3.5%
23,880
2015E
144,683
3.0%
24,596
2016E
149,023
3.0%
25,334
2017E
152,749
2.5%
25,204
2018E
155,804
2.0%
25,708
2019E
158,452
1.7%
26,145
2020E
160,829
1.5%
26,537
15.8%
17.0%
17.3%
17.5%
17.0%
17.0%
17.0%
16.5%
16.5%
16.5%
16.5%
622
762
656
814
773
796
820
840
857
871
885
0.5%
0.6%
0.5%
0.6%
0.6%
0.6%
0.6%
0.6%
0.6%
0.6%
0.6%
5,537
Tax Rate
21,558
2012E
9.0%
1.5%
6,239
6,596
6,881
6,932
7,140
7,354
7,309
7,455
7,582
7,696
29.0%
30.0%
30.0%
30.0%
30.0%
30.0%
30.0%
30.0%
30.0%
30.0%
30.0%
Minority Interest
311
381
459
475
492
506
522
535
545
555
563
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
% Grow th
7.4%
Add Depreciation/Amort
19,530
% of Sales
Plus/(minus) Changes WC
% of Sales
22,194
16,154
3.0%
22,860
16,638
3.0%
22,353
16,520
-0.7%
21,385
16,850
2.0%
21,813
17,137
1.7%
22,183
17,394
1.5%
22,516
15.0%
14.0%
14.0%
14.0%
14.0%
(419)
(78)
(1,435)
(1,357)
(1,405)
(1,447)
(1,490)
(1,527)
(1,558)
(1,585)
(1,608)
96,952
90,239
187,192
8.50%
12.2
13.8
6.7
7.3
5,900
$
$
0.7%
15.8%
-0.1%
17,335
13.7%
17,209
22.8%
Shares Outstanding
21,444
15,683
15.8%
14,008
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
1.2%
15.8%
% Grow th
NPV of Cash Flow s
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
20,850
15,580
15.9%
15.0%
Free Cash Flow
5.7%
15.8%
18,659
Capex % of sales
20,065
15,391
15.7%
-0.3%
Subtract Cap Ex
Current Price
Implied equity value/share
Upside/(Dow nside) to DCF
14,558
27.93
31.73
13.6%
-1.1%
20,335
15.5%
14,471
-15.9%
52%
48%
100%
-1.0%
19,001
14.0%
16,666
15.2%
-1.0%
19,666
14.0%
16,807
0.8%
-1.0%
20,256
14.0%
17,311
3.0%
-1.0%
20,863
14.0%
16,638
-3.9%
-1.0%
21,385
14.0%
14,992
-9.9%
-1.0%
21,813
14.0%
15,292
2.0%
-1.0%
22,183
14.0%
15,552
1.7%
Terminal Value
Free Cash Yield
11.3
12.9
6.3
6.8
10.7
12.2
6.0
6.5
-1.0%
22,516
14.0%
15,785
1.5%
213,629
7.39%
Terminal P/E
12.3
Terminal EV/EBITDA
6.3
AT&T Sensitivity Analysis
Discount Rate
Terminal growth Rate
9.00%
9.30%
9.50%
9.80%
10.00%
0.00% $ 28.99
$ 28.21
$ 27.47
$ 26.77
$ 26.11
0.30% $ 29.38
$ 28.57
$ 27.81
$ 27.08
$ 26.46
0.50% $ 29.80
$ 28.96
$ 28.16
$ 27.41
$ 27.60
0.80% $ 30.23
$ 29.36
$ 28.54
$ 27.76
$ 27.09
1.00% $ 30.70
$ 29.79
$ 28.94
$ 28.13
$ 27.37
1.30% $ 31.20
$ 30.25
$ 29.36
$ 28.52
$ 27.80
1.50% $ 31.73
$ 30.73
$ 29.80
$ 28.93
$ 28.11
1.80% $ 32.29
$ 31.05
$ 30.28
$ 29.37
$ 28.60
2.00% $ 32.90
$ 31.60
$ 30.79
$ 29.65
$ 28.94
2.30% $ 33.69
$ 32.30
$ 31.45
$ 30.24
$ 29.50
AT&T
• Current Price
– $27.92
• Target Price
– .65(DCF)+ .35(Valuation)=$30.87
• Current Upside
– 10.5%
• Dividend Yield
– 6.16%
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
Financial Analysis
NII Holdings, Inc.
Financial Analysis
NII Holdings, Inc.
NIHD(Previous Quarter)
Sensitivity Analysis NIHD
Analysts Recommendations NIHD
Current
Month
Last
Month
Two
Months
Ago
Three
Months
Ago
Strong Buy
9
9
8
7
Buy
8
8
7
7
Hold
1
1
2
2
Underperform
3
3
2
1
Sell
0
0
0
0
Data provided by Thomson/First Call
Telecom Stocks Followed
Target Summary
Current Target % Upside
NIHD
$ 39.30 $ 52.00
32%
AMT
$ 53.07 $ 61.00
15%
AT&T
$ 27.92 $ 31.00
11%
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.
What Questions Do You Have?