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M A Y 2 0 0 7 T E L E C O M S T O C K :    R E C O M M E N D A T I O N Presentation to FIN 824 (SPRING QUARTER) Marc Reitter Siddhesh Sankulkar T E L E C O M S T O C K R E C O M M E N D A T I O N Telecom Stock Recommendation Overview: 1

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Presentation Transcript
slide1

M A Y2007

T E L E C O M S T O C K :   R E C O M M E N D A T I O N

Presentation to FIN 824 (SPRING QUARTER)

Marc Reitter

Siddhesh Sankulkar

T E L E C O M S T O C K R E C O M M E N D A T I O N

telecom stock recommendation overview

Telecom Stock Recommendation Overview:

1

Sector Recommendation Recap

2

2

Current Holdings & Recommended Action

3

3

America Movil Overview & Analysis

4-10

MetroPCS Overview & Analysis

11-13

Company Risks

14

Action Recommendation

15

T E L E C O M S T O C K R E C O M M E N D A T I O N

1

sector weights sim vs s p 500
Sector weights – SIM vs. S&P 500

SIM overview: Maintain Overweight Position

  • Current holdings:
  • Current holdings:

SIM overweight Telecom by 3.43%

S&P 500 overview:

T E L E C O M S T O C K R E C O M M E N D A T I O N

2

current position company analysis
Current Position – company analysis

Current Holdings

Source: Yahoo Finance & Bloomberg

Recommendation

T E L E C O M S T O C K R E C O M M E N D A T I O N

  • Sell Windstream
  • Sell Sprint
  • Increase position in America Movil
  • Buy MetroPCS Communications

3

company overview america movil
Company overview – America Movil
  • America Movil through its subsidiaries, provides wireless communications services primarily in Latin America.
  • Operations in 15 countries in the Americas
  • More than 124 million mobile customers
        • Dominant position in Mexico and Central America
        • Third largest Wireless company in Brazil (South America’s largest economy)
  • Coverage for a combined population of 770 million
  • Carlos Slim – Owns 65% of the voting rights of America Movil, also is the 3rd richest individual in the world.

T E L E C O M S T O C K R E C O M M E N D A T I O N

4

catalysts america movil
Catalysts – America Movil
  • Positioned well throughout Latin America to take advantage of Emerging Markets
        • America Movil's economies of scale help it squeeze operating profits out of every market in which it offers service.
  • Low penetration rates (approximately 43%) throughout Latin America means a cornucopia of subscribers are still out there.
  • Renewed focus on operating costs
        • Strict control over overhead costs
  • Growth via Acquisition
        • Looking to continue adding assets in the near term as this has been the means of their growth over the years
        • Recently acquired Verizon’s Puerto Rico operations
        • Carlos Slim

T E L E C O M S T O C K R E C O M M E N D A T I O N

5

financial analysis america movil
Financial Analysis – America Movil

T E L E C O M S T O C K R E C O M M E N D A T I O N

6

financial analysis america movil8
Financial Analysis – America Movil

AMX Relative to S&P 500 (SP5A)

T E L E C O M S T O C K R E C O M M E N D A T I O N

7

valuation analysis america movil
Valuation Analysis – America Movil

T E L E C O M S T O C K R E C O M M E N D A T I O N

8

dcf analysis america movil
DCF Analysis – America Movil

T E L E C O M S T O C K R E C O M M E N D A T I O N

10

company overview metropcs communications
Company overview – MetroPCS Communications
  • MetroPCS began trading on the NYSE on April 19, 2007 following the completion of the company’s IPO
  • MetroPCS offers wireless service that is designed to extend benefits of mobility to the mass market by offering wireless service that is:
      • Simple to understand and use
      • Priced competitively with traditional landline service
      • Service allows customers to make unlimited calls within a local calling area
  • MetroPCS boasts a differentiated low-cost wireless subscriber model with approximately 3.4 million subscribers.

T E L E C O M S T O C K R E C O M M E N D A T I O N

Source: Company reports

11

catalysts metropcs communications
Catalysts – MetroPCS Communications
  • Maintaining low operating expense is Key for MetroPCS success
  • Continue with the “Market Clustering” strategy in densely populated areas with limited cell sites which minimizes network expenses
        • Core Markets: Atlanta, Dallas/Ft. Worth, Detroit, Miami, San Francisco, Sacramento, Tampa/Sarasota/Orlando, and Los Angeles
  • Continue to minimize marketing costs with low handset subsidies, owing to the absence of service contracts.
        • Consumers pay flat monthly fee for unlimited use within service area
        • The company sells its products and services to customers indirectly through approximately 2,000 independent retail outlets under the MetroPCS brand, as well as directly through 95 company-operated retail stores
  • Continue with the “Market Clustering” strategy in densely populated areas with limited cell sites which minimizes network expenses

T E L E C O M S T O C K R E C O M M E N D A T I O N

12

dcf analysis metropcs communications
DCF Analysis – MetroPCS Communications

T E L E C O M S T O C K R E C O M M E N D A T I O N

13

company risks
Company Risks

America Movil

  • Country Risk Primarily in Brazil and Mexico
        • Brazil's local monetary policy is a bit nonexistent and its tax laws are draconian.
        • Lack of transparency in financial reporting is concerning.
  • Currency risk and associated inflation concerns throughout Latin America
  • Intense competition from Rival Telefonica (Acquired 2nd largest company in Brazil)
  • Rising penetration rates throughout Latin America

MetroPCS Communications

T E L E C O M S T O C K R E C O M M E N D A T I O N

  • Primary risk continues to be execution risk and competitive response form national carriers
  • Build-out of 40 million Points of Presence (Towers and Connection Points) in the FCC Auction 66 markets by early 2009
  • Increased churn due to an economic downturn
  • The possibility of a dilutive acquisition

14

action recommendation
Action Recommendation
  • Sell 100% Windstream & Sprint
  • Action Scenario 1 – Use 50% proceeds to buy AMX and 50% proceeds to buy PCS
  • Action Scenario 2 – Use 75% proceeds to buy AMX and 25% proceeds to buy PCS

T E L E C O M S T O C K R E C O M M E N D A T I O N

15