Awe Blue Atlantic 10162003

US Mobile Telecom Industry: AT&T Wireless (AWE) Research Report October 16, 2003 B LUE A TLANTIC

Executive Summary US Mobile Telecom Outlook AT&T Wireless Valuation Appendix 1 2 3 4

We see AWE as attractive for long term appreciation driven by solid earnings and free cash flow growth over the 2002-07 timeframe. ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Price history Summary Forecast

AWE is undervalued relative to industry comparables on an EV/EBITDA basis. ATT Wireless AWE $8.40 $2,791 $29,823 6.6X ,[object Object],[object Object],[object Object],[object Object],Buy Sprint PCS PCS $5.75 $5,948 $22,968 7.0X ,[object Object],[object Object],[object Object],Buy Nextel NXTL $22.12 $22,906 $33,978 8.5X ,[object Object],[object Object],[object Object],[object Object],Sell US Cellular USM $34.64 $2,984 $4,374 6.7X ,[object Object],N/R Western Wireless WWCA $20.25 $1,606 $3,956 9.9X ,[object Object],N/R Dobson DCEL $9.03 $814 $2,322 8.3X ,[object Object],N/R Nextel Partners NXTP $9.12 $2,290 $3,826 28.1X ,[object Object],Sell Triton TPC $4.89 $333 $1,661 6.2X ,[object Object],N/R Selected US Mobile Telecom Pure Plays – Oct. 15th 2003 Sources: Company reports, BlueAtlantic Analysis. Company Market Value Comments Rating Name Ticker Price Mkt Cap (m) Enterpr. Value EV/EBITDA

Over the 2003-07 period we see opportunity for the mobile telecom industry to make the transition from high growth phase to solid free cash generation. ,[object Object],[object Object],[object Object],[object Object],[object Object]

Subscriber base seen growing 8.5% to 212M in 2007from 141M in 2002, with penetration reaching 70%. Sources: CTIA, Bureau of Census, BlueAtlantic Analysis. ,[object Object],[object Object],[object Object],Key Drivers US Mobile Telecom Subscribers – (EOP) Sources: CTIA, Bureau of Census, CIA Factbook, BlueAtlantic Analysis. 19.4% CAGR 8.5% CAGR Forecast 278.1 280.9 283.7 286.8 289.9 292.4 294.8 297.4 299.9 302.4 13.9 16.8 24.0 18.4 12.3 16.5 13.7 13.3 13.6 13.8 Pops Net Adds - 5% 10% 6% 4% 5% 4% 4% 4% 4% Increm Penetr Penetration (%) Subscribers (millions) Benchmark: Penetration Vs. Income Level Note: Bubble proportionate to subscriber base. Hong Kong Mobile Penetration (%) Per Capita GDP (000s of US$) US Portugal France Switzerland U.K. Sweden Spain Italy S. Korea Germany Netherlands Avg:$30k Avg:60% Japan

Service revenue to grow at 9.5% p.a. to $132B in 2007 driven by increase in subscribers and marginally higher average revenue per user (ARPU). ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Key Drivers Benchmark: Data as % of ARPU Mobile Telecom Service Revenue – $ billions Sources: FCC, CTIA, Company Reports, BlueAtlantic Analysis. 27.5% CAGR 9.9% CAGR Forecast - 25% 39% 29% 17% 12% 43.0 43.0 47.0 49.5 51.0 51.5 Rev. Growth ARPU - - - 0.5% 1.0% 1.5% %Data 11% 52.0 2.5% 9% 52.5 9% 53.0 10% 8% 53.6 12% 5.0%

EBITDA margins to expand from 30% in 2002 to 40% by 2007 driven by economies of scale and benefits from next generation networks (3G). Sources: CTIA, Company reports, BlueAtlantic analysis. Key Drivers ,[object Object],[object Object],[object Object],Benchmark: Selected EBITDA Margin 35.2% CAGR 15.6% CAGR Forecast - 20% 48% 42% 33% 19% 18% 16% 15% 14% - -1.0% 1.0% 3.0% 3.0% 2.0% 2.0% 2.0% 2.0% 2.0% EBITDA Growth Margin Exp. Mobile Telecom EBITDA EBITDA Margin (%) EBITDA ($ billion)

Capital expenditure requirements should fall from 30% of revenues in 2002 to 14% of revenues by 2007 as carriers complete their migration to 3G networks. Key Drivers ,[object Object],[object Object],[object Object],Benchmark: Capex/Revenue (2002/03) Sources: CTIA, Company reports, BlueAtlantic analysis. Forecast 65.9 81.7 104.3 127.5 139.3 158.2 177.6 194.5 213.1 231.2 1.05 1.05 1.05 1.01 1.01 0.99 0.96 0.95 0.93 0.92 Cellsites (‘000) Mobile Telecom Capex Capex as % of revenue Capex ($ billion) Subs/Cel(million)

The absence of future consolidation however, poses a long term threat to industry profitability, as the market remains too fragmented. Mobile telecom market share - 2002 Sources: FCC, Company reports, BlueAtlantic Analysis. ,[object Object],[object Object],[object Object],Comments Markets with 3 or more operators % of covered pops 2000 2002

Mobile data impact on revenue growth may lead to an upside surprise whereas excessive price competition poses the biggest threat to the downside. ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Forecast Risks

We see AWE benefiting from favorable industry fundamentals to grow EBITDA at 17%p.a. and free cash flow at 25% in the 2003-2007 period. ,[object Object],[object Object],[object Object],[object Object],[object Object],AWE is well positioned to leverage its brand name and GSM network to earn its cost of capital, but pricing pressures due to industry fragmentation and unpredictable regulatory environment remain a notable threat to our forecast.

Subscriber growth at AWE is estimated at 8.0%p.a. in the forecast horizon based on market share at around 14.5% and churn at 2.1% per month. ,[object Object],AWE Subscribers - EOP Sources: CTIA, Bureau of Census, CIA Factbook, BlueAtlantic Analysis. 17.3% CAGR 8.0% CAGR Forecast - - Growth Net Add (m)* - Net Add Share* Key Drivers 19.0% 2.9 15.3% 15.6% 2.8 22.7% 8.0% 1.7 10.1% 9.0% 2.0 14.7% 8.2% 2.0 15.0% 7.7% 2.0 15.0% 7.2% 2.1 15.0% ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],* Includes acquisitions (e.g.Telecorp, etc.) 2.9% Churn 2.9% 2.6% 2.2% 2.3% 2.1% 2.1% 2.1% Market Share (%) Subscribers (millions)

Revenue growth is estimated at 7.9%p.a. driven by growth in subscriber base and stable ARPU at around $61 per month. ,[object Object],AWE Service Revenues Sources: CTIA, Bureau of Census, CIA Factbook, BlueAtlantic Analysis. 24.2% CAGR 7.9% CAGR Forecast - 63.2 Rev Growth ARPU Key Drivers 33.7% 62.9 15.6% 62.0 8.6% 59.4 5.9% 61.6 8.7% 60.9 8.4% 61.1 8.0% 60.4 ,[object Object],[object Object],[object Object],[object Object],* Includes acquisitions (e.g.Telecorp, etc.) - MOU 382 477 539 582 594 606 617 Benchmark: ARPU 2002 Data Share (%) Service Revenues - $B

EBITDA growth is seen at 16.9%p.a. driven by rising revenues and margins as AWE reduces its cash cost per user (CCPU) in line with its key competitors. ,[object Object],AWE EBITDA Sources: CTIA, Bureau of Census, CIA Factbook, BlueAtlantic Analysis. 41.4% CAGR 16.9% CAGR Forecast Key Drivers 65% 32.73 23% 32.03 24% 31.04 14% 29.14 18% 28.05 15% 27.02 14% 26.02 ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],* Includes acquisitions (e.g.Telecorp, etc.) $334 $377 $365 $338 $347 $350 $354 Benchmark: CCPU 2002 EBITDA Margin (%) EBITDA - $B EBITDA Growth CCPU $/m CPGA

Capital expenditure requirements should come down significantly from 37% in 2002 to 15% in 2007, spurring 25%p.a. growth in free cashflow. ,[object Object],AWE Capital Expenditure Requirements Forecast Key Drivers ,[object Object],[object Object],$1,805 $0.20 $1,886 $0.14 $1,796 $0.11 $1,402 $0.12 $1,447 $ 0.16 $1,448 $0.16 $1,539 $0.17 76 113 140 164 182 200 219 AWE Free Cash Flow % of Revenue Capex - $B Capex/ Net Add Capex/ Ad Minute Minutes (bn) 25%p.a.

Our DCF model indicates a value of $11.70 per AWE share which would still leave it trading at a discount to Nextel’s current EV/EBITDA ratio. AWE Target Price Recent Price - - DCF Valuation DCF Rationale ,[object Object],[object Object],[object Object],Comparable EV/EBITDA* Multiples Share Price: $8.3 $12 $5.7 $21.5 *2004 EBITDA

AWE is well positioned to leverage its brand name and GSM network to earn its cost of capital, but pricing pressures due to industry fragmentation and unpredictable regulatory environment remain a notable threat to our forecast. ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Pro-forma Income Statement forecast.

Pro-forma Balance Sheet forecast.

Pro-forma Free Cash Flow forecast.

Awe Blue Atlantic 10162003

Empfohlen

Empfohlen

Weitere ähnliche Inhalte

Was ist angesagt?

Was ist angesagt? (20)

Ähnlich wie Awe Blue Atlantic 10162003

Ähnlich wie Awe Blue Atlantic 10162003 (20)

Awe Blue Atlantic 10162003