Recommendation Industry Information Analysis ◦ ◦ ◦ ◦ Business Economic Financial Valuation Summation and comments Decrease SIM portfolio by 42 basis points to come in line with S&P 500 Reallocate funds within the Telecommunication.
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Transcript Recommendation Industry Information Analysis ◦ ◦ ◦ ◦ Business Economic Financial Valuation Summation and comments Decrease SIM portfolio by 42 basis points to come in line with S&P 500 Reallocate funds within the Telecommunication.
Recommendation
Industry Information
Analysis
◦
◦
◦
◦
Business
Economic
Financial
Valuation
Summation and comments
Decrease SIM portfolio by 42 basis points to
come in line with S&P 500
Reallocate funds within the
Telecommunication SIM Sector
S&P 500
Sector
S&P 500
9.11%
11.94%
12.35%
14.66%
12.65%
10.09%
19.04%
3.39%
3.09%
3.68%
Consumer Discretionary
Consumer Staples
Energy
Financials
Health Care
Industrial
Information Technology
Materials
Telecommunications
Utilities
SIM Portfolio Difference
7.51%
-1.60%
12.23%
0.29%
12.80%
0.45%
6.59%
-8.07%
13.13%
0.48%
11.97%
1.88%
21.97%
2.92%
4.52%
1.13%
3.51%
0.43%
3.19%
-0.49%
3%
3%
4%
Consumer Discretionary
9%
19%
Consumer Staples
12%
Energy
12%
Financials
Health Care
Industrial
10%
Information Technology
15%
13%
Materials
Telecommunications
Utilities
SIM Portfolio
5%
4% 3%
Consumer Discretionary
8%
Consumer Staples
12%
Energy
23%
13%
12%
7%
13%
Financials
Health Care
Industrial
Information Technology
Materials
Industries
Wireless Telecom Service
Integrated Telecom Service
Market Cap
$12.00
$116.90
Largest Companies in the Telecom Sector
AT&T
◦ Former SBC merged with AT&T creating the new AT&T (USA)
China Mobile
Vodafone
Verizon Communications
Deutsche Telekom
America Movil
◦ Formerly China state-owned, now still state-controlled, one of
two mobile phone monopolies in the entire China.
◦ Britain's largest telecom operator.
◦ US-based telecom company formed after a series of mergers.
◦ German telecom company, also owns T-Mobile.
◦ Mexican operator controlled by the world's richest man - Carlos
Slim.
MTD
-5.05%
QTD
-5.05%
YTD
-7.95%
Mature and Defensive (Industry Specific)
◦ Established networks and low maintenance costs,
little need for increased capital spending.
◦ More resistant to economic fluctuations, domestic
and foreign.
Marketing Mix Indicators
◦
◦
◦
◦
Product
Price
Distribution
Promotion
0.0000
-10.0000
-20.0000
-30.0000
Telecom
S&P 500
-40.0000
-50.0000
-60.0000
.85 Beta
Demand saturated with providers
New capacity
◦ 3G and 4G networks
◦ Open Interface programming
Government Regulations
Currency Fluctuations
New Innovations
Spectrum Availability
Workforce
Domestic and International
Spectrum availability
User dynamics
Threats of New Entrants
Power of Suppliers
Power of Buyers
Availability of Substitutes
Competitive Rivalry
◦ Capital intensity
◦ Ownership of a telecom license
◦ Acceptable radio spectrum
◦ Large number of vendors dilutes the bargaining power
◦ Increasing choice
◦ Low differentiation
◦ Switchover costs
◦ Cable TV, Satellite Operators, and Internet
◦ Cut-Throat
◦ Low price and slight differentiations
Economic Factor
Unemployment
Consumer Confidence
New Homes
Federal Funds Rate
Capital Spending
Correl
-0.65
0.72
0.81
0.74
0.82
Sector
Financial Analysis
5-year Growth Rate
Net Profit Margin
Return on Equity
S&P 500
Financial Analysis
5-year Growth Rate
Net Profit Margin
Return on Equity
Growth
Sales
Earnings
8%
9%
2005
10.1%
14.8%
2006
10.3%
14.3%
2007
10.4%
14.9%
2008
9.4%
13.4%
2009
Average
8.5%
9.7%
13.9%
14.3%
Growth
Sales
Earnings
7%
0%
2005
8.8%
17.6%
2006
9.3%
21.0%
2007
8.9%
17.0%
2008
6.5%
15.0%
2009
Average
6.2%
7.9%
11.0%
16.3%
Industry - Wireless
Financial Analysis
5-year Growth Rate
Net Profit Margin
Return on Equity
Growth
Sales
Earnings
6%
-19%
2005
11.2%
12.3%
Industry - Integrated Telecom
Financial Analysis
5-year Growth Rate
Net Profit Margin
Return on Equity
2006
10.1%
7.6%
2007
6.8%
4.9%
2008
1.4%
2.7%
2009
Average
1.0%
6.1%
2.2%
5.9%
2008
10.6%
16.0%
2009
Average
9.6%
10.3%
16.8%
17.1%
Growth
Sales
Earnings
10%
14%
2005
10.1%
15.7%
2006
10.4%
18.0%
2007
11.0%
19.0%
AT&T
2005
2006
2007
2008
2009
Average
Net Profit Margin
10.9%
11.7%
10.0%
10.4%
17.9%
12.2%
Return on Equity
10.1%
8.6%
10.4%
12.2%
15.6%
11.4%
2005
2006
2007
2008
2009
Average
Total Sales
$ 43,862
$
63,055
$ 118,928
$ 124,028
$ 123,008
$ 94,576
Depreciation
$ 7,622
$
9,879
$ 21,546
$ 19,883
$ 19,661
$ 15,718
Depreciation % of Sales
17.4%
15.7%
18.1%
16.0%
16.0%
16.6%
Operating Margins
14.1%
16.3%
17.2%
18.2%
18.5%
16.9%
Operating Cash Flows
Positive Operating Cashflows
Verizon
2005
2006
2007
2008
2009
Average
Net Profit Margin
9.8%
6.2%
5.9%
6.6%
6.7%
7.0%
Return on Equity
19.2%
12.4%
11.1%
13.9%
14.9%
14.3%
2005
2006
2007
2008
2009
Average
Total Sales
$ 75,112
$
88,144
$ 93,469
$ 97,354
$ 103,970
$ 91,610
Depreciation
$ 14,047
$
14,545
$ 14,377
$ 14,565
$ 15,596
$ 14,626
Depreciation % of Sales
18.7%
16.5%
15.4%
15.0%
15.0%
16.1%
Operating Margins
19.0%
15.2%
16.7%
17.3%
17.0%
17.0%
Operating Cash Flows
Positive Operating Cashflows
P/Trailing E
P/Forward E
P/B
P/S
P/CF
Sector S&P 500 Wireless Integrated
-33%
-33%
209%
-34%
-11%
-16%
NM
-18%
-19%
14%
-33%
-22%
-33%
-18%
-59%
-33%
-36%
-20%
-60%
-29%
>30% below mean – Green
>0% above mean - Red
Company Comparison
P/Forward E
P/S
P/B
P/EBITDA
P/CF
NIHD
-28%
-58%
-71%
-64%
-55%
AT&T
Verizon
-16%
-13%
-24%
-43%
-32%
-26%
-40%
-49%
-36%
-25%
Slightly undervalued, Defensive (.85), Cheap
relative to S&P 500
Potential growth in wireless and data division
Cut throat competition in the growth areas
Tightening profit margins in the wireless
industry
Uncertainty in global financial market
Decrease SIM portfolio by 42 basis points to
come in line with S&P 500
Reallocate funds within the
Telecommunication SIM Sector
Questions?