Telecom Company Presentation
November 30, 2010
Tom Morello
Erin Neal
Wen Wen
Agenda
•
•
•
•
•
•
Recap of Recommendations
Sector Summary
NII Holding Analysis
AT&T Analysis
Verizon Analysis
Conclusion
Sector Summary
Sector
S&P 500 Weight
SIM Weight
+/-
Consumer Discretionary
10.55%
10.44%
-0.11%
Consumer Staples
10.91%
11.71%
0.80%
Energy
11.18%
9.76%
-1.43%
Financials
16.47%
11.41%
-5.07%
Health Care
11.55%
14.63%
3.07%
Industrials
10.76%
13.10%
2.34%
Information Technology
18.91%
20.18%
1.27%
Materials
3.45%
1.64%
-1.82%
Telecommunication
Services
3.12%
4.04%
.92%
Utilities
3.48%
2.10%
-1.38%
Cash
0.00%
1.26%
1.26%
Dividend Receivables
0.00%
0.08%
0.08%
100.00% 100.00%
0.00%
NIHD Overview
• 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
NIHD Overview
Price: $39.04
Target Price: $63.79
Projected Return: 63.4%
52- Week Price Range:
$28.31- $45.26
Market Cap: 6.61B
Beta: 2.10
Shares: 166M
NIHD Business Analysis
• Market Cap of $6.61b
• High Beta of 2.10
• Company in growth phase
– High growth rate
– Heavily financed through debt
• Possible factors to affect performance
– Exchange rates
– Interest rate
NIHD Valuation Analysis
Relative to S&P 500
High
Low
Median
Current
P/Trailing E
3.2
.43
1.4
1.4
P/Forward E
2.3
.52
1.2
1.2
P/B
5.3
.8
2.8
1.0
P/S
3.4
.6
1.8
1.1
P/CF
3.0
.3
1.1
.8
Absolute Valuation High
Low
Median
P/Forward E
54.1
6.0
22.1
21.2
22.1
*Your
Target E, S,
B, etc/Share
2.75
P/S
34.3
6.7
18.3
16.3
18.3
2.31
42.27
P/B
16.8
1.2
8.2
2.3
8.2
5.3
43.46
P/EBITDA
20.86
.17
8.16
5.11
8.16
9.77
79.7
P/CF
32.8
2.7
12.4
8.1
12.4
6.08
75.39
Average price = $60.31
Current
#Your Target
Multiple
Your Target
Price
(F x G)
60.75
DCF MODEL
NIHD Sensitivity Analysis
Current price
Implied equity value/share
Upside potential
Free Cash Flow Growth
Discount rate = 12.5%
Terminal growth rate =5%
Average = $67.28
Terminal Discount Rate
NIHD
3.0%
$39.16
$64.44
64.5%
9.5%
10.0%
10.5%
11.0%
11.5%
12.0%
12.5%
13.0%
88.58
80.91
74.31
68.57
63.53
59.09
55.14
51.62
93.99
85.36
78.01
71.68
66.17
61.34
57.08
53.29
100.39
90.56
82.29
75.24
69.16
63.88
59.24
55.15
108.06
96.70
87.28
79.34
72.58
66.75
61.68
57.23
117.45
104.07
93.17
84.13
76.52
70.03
64.44
59.57
129.18
113.08
100.25
89.79
81.12
73.82
67.59
62.22
144.26
124.33
108.89
96.58
86.56
78.24
71.23
65.25
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
Potential Catalysts & Risks
Catalysts
• Latin America economic
recovery, average growth
of 8.4%
• Growth of Cell phone
users in markets
• Expansion of 3G markets
Risks
• Exchange rates
• Government regulations
Estimated Price
Weighted Average of Multiple evaluations + Weighted Average DCF Model
$60.31×50% + $67.28×50% = $63.79
Return of 63.4%
AT&T Overview
• Four business segments
– Wireless
– Wireline (U-verse TV & cable, landline phone service, strategic
business solutions, etc.)
– Advertising Solutions (Printed and internet advertising)
– Other (Corporate operations)
AT&T Overview
•
•
•
•
•
Current Price: $27.70
Target Price: $35.36
Dividend Yield: 6%
Projected Return: 34%
52 Wk Price Range:
$23.78 - $28.73
• Market Capitalization:
165B
• Avg Daily Volume:
25.5M
• Diluted Shares
Outstanding: 5.92M
Verizon Overview
• Leading company
• Two segments: Domestic Wireless, Wireline
• Favorable result for the 3rd quarter 2010, Accelerated
FiOS growth
• Acquisition of Alltel--cost savings
• Launch of 4G network—growth driver
• Decreased net profit—Large amount of expenditures on
acquired Alltel property, wireless EV-DO networks and
separation plan.
• Fierce competition with BCE, Chunghwa telecom
Verizon Overview
• Market Cap: $91.45 Billion
• 52 wk Range: $25.99-$34.13
• Current Price: 31.90
Absolute
Valuation
A.
P/Forward E
P/S
P/B
P/EBITDA
P/CF
High
B.
17.4
2.4
5.4
5.85
8.1
Low
C.
8.2
0.7
1.5
2.8
3.1
Median
D.
12.7
1.2
2.3
3.72
4.3
Current
E.
14.6
0.9
2.3
3.46
4
Target
Multiple
F.
13.5
1.1
2.25
3.6
4.2
Target E, S,
B, etc/Share
G.
2.34
37.45
14.14
9.1
8.1
Target Price
H.
31.59
41.195
31.815
32.76
34.02
DCF: Growth Rate=9.5%
FCF Growth=3.0%
Current Price=$31.9 (11/29/10)
Target Price= $36.96
•Target Price:
$36.96* 50 %+( 1/4)*($31.59+$31.82+$32.76+$34.02)*50%= $34.75
•Upside: 8.9%
•Rating: Hold
•Analyst opinion: Strong buy-6, buy-9, hold-19, underperform-1,sell-1
Conclusion
• NIHD has best upside potential and
highest expected return of domestic
telecom companies at 65%
• AT&T has good expected return of 34%,
but it is not has high as NIHD
• Recommendation: Maintain current
NIHD weight
Questions?