recommendation buy 150 shares telecommunication sector – team 5
Post on 01-Jan-2016
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Recommendation Buy 150 shares
Telecommunication sector – Team 5
Description• Spanish based company
• Integrated operator in telecom:• Fixed-line & mobile phone• Internet & data transmission services• Pay TV
• 4th position in Telecom sector worldwide (by market cap)
• 1st as European integrated operator
• 245 million customers (June 2008)
• 60% business international
Market Size
Summary statisticsTelefonica America
MovilFrance Telecom
S&P Global Tel
Price 53.67 36.13 25.63 49.78
52 week range
53.22 -
103.50 28.58 - 67.65
20.88 – 39.70
40.36 – 83.13
Beta 0.99 1.34 0.83 1.12
Market cap.
88.80B 62.23B 49.55B 185.8B
P/E 8.78 13.61 9.02 11.01
EPS 7.43 2.66 2.69 N.A
Dividend yield
5.7% 1.4% 10.7% 5.99%
Price chart - Competitors
Price chart - Industry
Industry trends
• Main growth in broadband, mobile phones and pay per view
• Growth by acquisitions
• Heavily capital-intensive• Infrastructure• Market share
• Intense competition among few companies. Especially in Europe.
Investment positives• Strong market positions
• Spain (Telefonica S.A.)
• Latin America (Brazil: Telesp & Vivo)
• Europe (UK: O2)
• Very attractive growth profile due to:
• Latin America
• Eastern Europe
• Diversified portfolio of assets
• Economies of scale and efficiencies
• Dividends & share buyback
• Part of DJSI
High Organic growth preserving margins
News• Nov 4, 2008: TEF Successfully completes tender
offer for Chilean Telecom.
• June 11, 2008: TEF to sell iPhone to 16 countries (Spain, UK, Ireland, Brazil, Argentina…)
• Telefonica signs global agreement with Facebook to incorporate direct access from its mobile portals
• TEF chosen by Microsoft to provide voice over IP services to Windows Live Messenger customers in Argentina, Brazil, Chile, Colombia, Peru, the United States, and Venezuela.
Revenues – 2nd Quarter 2008
Reported revenues rose 1.2% compared to the first half of 2007
Organic Revenue Growth
Region Organic Revenue Growth
Contribution to Organic Growth
Guidance 08
Telefonica Group
6.7% 6% - 8%
Latin America 12.2% 4.3% 11% - 14%
Europe 6.2% 1.6% 4% - 7%
Spain 2.1% 0.5% 2% - 3.5%
Period Jan-Jun 2008
Risks• Increasing price competition in
Europe and some countries in Latin America (Brazil)
• Acquisitions & high levels of debt
• Political risks• Argentina
• Currency risk (ADR)
• New regulatory measures and policies
Valuation
Telefonica America Movil France Telecom
P/E 8.78 13.61 9.02
PEG 0.97 0.32 0.84
Price/Book 3.52 4.66 1.77
Profit margin 18.93% 17.74% 10.62%
Debt/Equity 2.69 0.69 1.39
Current Ratio 0.79 0.65 0.55
Valuation - DCF• WACC:
• WACC = 8.69%• Cost of Equity: Ke = 12.93%• Cost of Debt: Kd = 4.86%• Market Value of Equity: E/(D+E) = 55.32%• Market Value of Debt: D/(D+E) = 44.68%• Tax Rate = 29.00%
• Growth rate: 1.2% - 1% - 2% - 5%...
• Terminal growth rate: 3%
• Intrinsic value: € 25.27 (current: € 14.03)
Valuation - DDM
Valuation – Other references
Conclusion• Buy 125 shares
• Summary reason:• Strong results and organic revenue
growth• Diversification and integrated
management• High growth potential (Latin America,
China)• Prioritizing shareholders returns (good
dividend + share buyback)• Undervalued
R&D• Spent 4.5 billion euros in R+D
Revenue Growth
Ratios
Competitors
Europe LatAm US Asia Africa
Telefonica Yes Yes - - -
Telmex + A. Movil
- Yes Yes - -
France Telecom
Yes - Yes Yes Yes
Vodafone Yes Yes Yes Yes Yes
Telecom Italia Yes Brazil - - -
AT&T - - Yes - -
Verizon Italy - Yes - -
Deutsche Tel. Yes - - - -
BT Yes Yes - Yes Yes
Currency Risk• Volatile market
• Interest rate cut from ECB (potentially strengthening euro vs. dollar)
• Euro expected to stay between $1.2 and $1.3
Earnings Estimates
Credit Ratings
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