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M A Y 2 0 0 7. T E L E C O M S E C T O R  :    O V E R V I E W . Presentation to FIN 824 (SPRING QUARTER) Marc Reitter Siddhesh Sankulkar. T E L E C O M S E C T O R. Telecom Sector Overview: . 1. Sector Overview. 2. 2.

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Presentation Transcript

M A Y2007

T E L E C O M S E C T O R :   O V E R V I E W

Presentation to FIN 824 (SPRING QUARTER)

Marc Reitter

Siddhesh Sankulkar

T E L E C O M S E C T O R


Telecom sector overview

Telecom Sector Overview:

1

Sector Overview

2

2

Sector Weights – SIM v S&P 500

3

3

Size & Composition

4

Sector Performance

5

Economic Analysis

6-10

Financial Analysis

11-14

T E L E C O M S E C T O R

Valuation Analysis

15-20

Domestic M&A Activity

21

Recommendation

22

1


Sector overview defined
Sector overview – defined

S&P Telecom Sector

  • The Telecom sector is grouped into two primary segments:

    • Telecommunications Equipment

      • Wireless, Satellite & Network

    • Telecommunications Services

      • Cable & Satellite, Data Services, Wireless Communications

    • Telecom Industry Growth

      • The worldwide telecom industry is in a strong growth mode, and overall industry revenue is expected to climb to $1.3 Trillion in 2007.

      • Strong growth in wireless is leading the way as wireless service revenues are expected to grow at a compounded rate of nearly 10 percent over the next few years.

T E L E C O M S E C T O R

Source: Insight Research Corp. 2007 industry review

2


Sector weights sim vs s p 500

-.62%

2.10%

2.85%

10.54%

-.79%

6.61%

.52%

8.59%

-3.96%

1.05%

Sector weights – SIM vs. S&P 500

SIM overview:

  • Current holdings:

  • Current holdings:

SIM overweight Telecom by 3.43%

S&P 500 overview:

T E L E C O M S E C T O R

YTD Return

3


Sector overview company analysis
Sector overview – company analysis

Size & composition

  • Telecom defined within the S&P 500:

  • Current SIM holdings:

T E L E C O M S E C T O R

Source: Yahoo Finance & Bloomberg

4


Sector overview performance strength
Sector overview – performance & strength

Performance of S&P Telecom Services (SP50):

Strength of S&P Telecom Services (SP50):

T E L E C O M S E C T O R

5


Sector overview economic analysis
Sector Overview Economic Analysis

Telecom Sector Outlook is positive in the recent past and for the foreseeable future

  • In 2006, the U.S telecommunications market grew at its fastest rate since 2000.

  • TIA states that the U.S Market grew 9.3% in 2006 to total $923 billion in revenue.

  • Projected revenue for the U.S Market in 2007 is at $1025 billion at 11.05%

  • Major drivers of high growth rates are expansion of wireless communication and broadband access.

  • Wireline is losing ground to wireless and VoIP

T E L E C O M S E C T O R

6


Sector overview economic analysis1
Sector Overview Economic Analysis

United States market is looking good but the real growth is overseas

  • Growth is expected in VoIP, as the broadband-based phone technology is forecast to make up 34% of all U.S residential landlines by 2010, up from just 10% in 2006.

  • Overall, the international market grew 12.1 percent in 2006. Middle East/Africa was the fastest growing region, expanding at 21.6%

  • By 2010, the global market is expected to reach $4.3 trillion in revenue, up from $3 trillion in 2006.

T E L E C O M S E C T O R

7


Sector overview economic analysis2
Sector Overview Economic Analysis

‘Non-voice’ revenues on the rise

  • While growth in voice traffic continues to stimulate the wireless market, data and multimedia applications will drive wireless revenues in the future.

  • The number of broadband subscribers increased from fewer than 5 million in 2000 to nearly 57 million in 2006.

  • Dial-up subscribers fell to 35 million from a peak of 47 million in 2006.

  • With nearly 80% of all households already online and the majority of online households already having a broadband subscription, overall subscriber growth and broadband subscriber growth will necessarily slow.

T E L E C O M S E C T O R

8


Sector overview economic analysis3
Sector Overview Economic Analysis

Key Economic Drivers

  • Sector growth is correlated with:

  • GDP (+)

  • Population Growth (+)

  • Unemployment Rate (-) Most pronounced

  • Wireline growth is more strongly correlated with above than wireless

T E L E C O M S E C T O R

9


Sector overview economic analysis4
Sector Overview Economic Analysis

Key Economic Drivers – Unemployment Rate (-)

T E L E C O M S E C T O R

10


Sector overview financial analysis
Sector Overview Financial Analysis

SP-50 Income Statement Analysis

T E L E C O M S E C T O R

11


Sector overview financial analysis1
Sector Overview Financial Analysis

SP-50 Cash Flow Statement Analysis

T E L E C O M S E C T O R

12


Sector overview financial analysis2
Sector Overview Financial Analysis

SP-50 Income Statement Ratios

SP-50 Cash Flow Statement Ratios

T E L E C O M S E C T O R

13


Sector overview financial analysis3
Sector Overview Financial Analysis

SP-50 Prospective Growth and Margin Data

T E L E C O M S E C T O R

14


Sector overview valuation analysis
Sector Overview Valuation Analysis

SP-50 Historical Sector Performance (5 Years)

T E L E C O M S E C T O R

15


Sector overview valuation analysis1
Sector Overview Valuation Analysis

Price/Yr-Forward Earnings relative to S&P 500

T E L E C O M S E C T O R

16


Sector overview valuation analysis2
Sector Overview Valuation Analysis

Price/EBITDA relative to S&P 500

T E L E C O M S E C T O R

17


Sector overview valuation analysis3
Sector Overview Valuation Analysis

Price/Sales relative to S&P 500

T E L E C O M S E C T O R

18


Sector overview valuation analysis4
Sector Overview Valuation Analysis

Price/Book Value relative to S&P 500

T E L E C O M S E C T O R

19


Sector overview valuation analysis5
Sector Overview Valuation Analysis

Price/Cash Flow Adjusted to S&P 500

T E L E C O M S E C T O R

20


M a activity
M&A activity

A look at what is happening to the Industry in the US before we recommend

21


Sector overview recommendations
Sector Overview Recommendations

  • Hold current SIM overweight position of 3.43%

  • Divest holdings in Wireline companies which have no wireless component e.g. Windstream Corporation.

  • Invest more in US companies offering integrated telecom services i.e. wireless, wireline, broadband and video services. We see brightest prospects for the national carriers (AT&T, Sprint/Nextel, Verizon) which are able to market on a nationwide basis, offer nationwide calling plans, and carry most traffic on their own networks. They get to exploit both economies of scale and economies of scope.

  • Invest more in Wireless providers in emerging markets. General consensus of industry experts is that these providers will continue to realize double-digit subscriber and revenue growth in 2007, improving margins and profitability.

T E L E C O M S E C T O R

22


Sector overview questions
Sector Overview Questions

  • Questions?

T E L E C O M S E C T O R

23


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