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Telecommunications Sector Stock Presentation

Telecommunications Sector Stock Presentation. Chad Stutz Ryan Cook. Fin 724/824. Review of Recommendations. Overweight Telecom Telecoms have steady cash flows, so... Balance SIM growth portfolio with “Defensive-Growth” stocks Structure holdings to emphasize wireless industry

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Telecommunications Sector Stock Presentation

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  1. Telecommunications SectorStock Presentation Chad Stutz Ryan Cook Fin 724/824

  2. Review of Recommendations • Overweight Telecom • Telecoms have steady cash flows, so... • Balance SIM growth portfolio with “Defensive-Growth” stocks • Structure holdings to emphasize wireless industry • Primary focus in emerging markets • Add 156 bps to portfolio

  3. SIM PORTFOLIO • Sector Presentation earned an additional 156 basis points for the Telecommunications Sector • Currently the only stock the SIM portfolio holds in Telecommunications is America Movil

  4. AméricaMóvil, S.A.B. de C.V. (AMX) • 3rd largest wireless network operator in world • 182 mil wireless subscribers • Largest corporation in Latin America • Operates in 18 countries • Primarily Wireless Company • Fixed line operations in Central America & Caribbean • Operates in Mexico as Telcel = #1 wireless company • Operates in Brazil as Claro = #2 largest market • Operates in U.S. as TracFone = pre-paid provider

  5. Valuation Analysis: Price Multiples

  6. AMX - Target Price & Upside Sensitivity Analysis

  7. AMX Recommendation • Upside of 13.81% from DCF • Lowest DCF upside of 4 companies we reviewed • AMX is approaching maturity stage of life cycle • Evidenced by market saturation in major markets • Good company, but there are better opportunities • SELL all shares = 240 bps

  8. NII Holdings, Inc. (NIHD) • Originally organized in 1995 as a holding company for the operations of Nextel Communications, Inc. in selected international markets. • Operates in the emerging markets in Latin America. • Beta of 2.22 very cyclical stock. • Reports its results of operations in U.S. dollars, therefore changes in exchange rates can affect earnings reports.

  9. Valuation Analysis: Price Multiples

  10. NIHD - Target Price & Upside

  11. NIHD Recommendation • Upside of 50.03% from DCF • Extremely cheap price multiples • Latin American wireless • NIHD has more room to grow than AMX • Cyclical growth stock • BUY 75 bps

  12. Verizon Communications (VZ) • iPhone contract with AT&T expires in 201o, Verizon is in discussions with Apple to develop an iPhone for Verizon with the goal of introducing it next year. • 40 percent of iPhone users are new AT&T subscribers, contributing to yet another net gain in wireless customers. • Verizon can expect similar results if Apple does produce a version of the iPhone for Verizon.

  13. Valuation Analysis: Price Multiples

  14. VZ - Target Price & Upside

  15. VZ Recommendation • Upside of 20.35% from DCF • Underpriced multiples • iPhone on the horizon (4G) • Domestic defensive stock = sector diversification • BUY 50 bps

  16. China Mobile Limited (CHL) • World’s #1 mobile operator - in terms of subscribers • 415 mil wireless subscribers (2/3 of China market) • Largest company on Hong Kong Stock Exchange • 1/2 of new subscribers in 2007 from rural areas • Continued growth will be fueled by rural expansion • State-owned corporation • This year, the company will start rolling out 3G • More data plans = more revenue • iPhone?

  17. Valuation Analysis: Price Multiples

  18. CHL - Target Price & Upside Sensitivity Analysis

  19. CHL Recommendation • Upside of 64.11% from DCF • Very cheap price multiples • Defensive Growth company • Opportunities for continued growth in rural regions • 3G on the horizon • Wireless data & possible iPhone • BUY 271 bps

  20. Recommendations • AMX has low DCF valuation and is approaching maturity. Good company, but there are better ones • VZ is a defensive domestic that keeps us diversified while positioning for growth • NIHD is a cyclical growth stock that seems undervalued and has a very impressive upside • CHL is a defensive growth stock with the highest upside and potential for major growth in rural regions

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