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.
Download ReportTranscript 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?