Telcom Sector - Fisher College of Business | SU11.pdf · • Member of the Wireless sector of the Telecom industry. ... P/S 373.7 .6 171.7 .9 P/CF 3.0 .3 1.1 .7 ... • Member of

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


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


• 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


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


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.


• 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


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


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


Key StatsCurrent Price: $50.50Rating: BuyPrice Target: $61.00Dividend Yield: N/A52-Week Range: 45.14 - 56.84gMarket Capitalization: $20.36 Billion


• 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


• 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


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


• 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

Documents

Telcom Sector - Fisher College of Business | SU11.pdf · • Member of the Wireless sector of the Telecom industry. ... P/S 373.7 .6 171.7 .9 P/CF 3.0 .3 1.1 .7 ... • Member of