Telecom Corp of New Zealand (TEL)

Discount cash flow analysis

Within margin of safety Undervalued by 0.0%

5% margin of safety What's this?

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How does this work?

This is an interactive analyst report for Telecom Corp of New Zealand, based on a discounted cash flow valuation approach.

You can modify the assumptions and the valuation will be updated automatically. You can also save and share your valuation.

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Values in $ millions
2007 2008 2009 2010 2011 2012 2013 2014
 
                 
               
 

What will the revenues be in the future?

Growth beyond year three is driven by the terminal growth rate.

Sensitivity matrix

   
-1%
Discount Rate %
0%

1%
  -1% $3.45 $3.40 $3.35
Terminal Growth% 0 $3.45 $3.40 $3.36
  +1% $3.46 $3.41 $3.36

How does a change in discount rate or terminal growth affect valuation?

This table shows the sensitivity of the valuation to two key variables - the discount rate and the terminal growth rate

Valuations and comments

  • GordonGekko created a new valuation of $2.19 (undervalued by 14.66%) - over 7 years ago
  • GordonGekko created a new valuation of $2.34 (undervalued by 4.46%) - over 7 years ago
  • GordonGekko created a new valuation of $2.70 (undervalued by 20.54%) - over 7 years ago
  • GordonGekko created a new valuation of $2.78 (undervalued by 20.87%) - over 7 years ago
  • BrendonDCFV created a new valuation of $1.45 (overvalued by 36.96%) - over 7 years ago
  • BrendonDCFV created a new valuation of $1.12 (overvalued by 51.3%) - over 7 years ago
  • BrendonDCFV created a new valuation of $2.51 (undervalued by 9.13%) - over 7 years ago
  • sambling created a new valuation of $2.93 (undervalued by 24.68%) - almost 8 years ago
  • DarrylLundy created a new valuation of $2.54 (overvalued by 8.3%) - 8 years ago
  • GordonGekko created a new valuation of $2.96 (undervalued by 13.41%) - 8 years ago
  • GordonGekko created a new valuation of $2.69 (undervalued by 3.86%) - over 8 years ago
  • SethWellbourne created a new valuation of $2.54 (undervalued by 9.48%) - over 8 years ago
  • GordonGekko created a new valuation of $2.63 (undervalued by 11.91%) - over 8 years ago
  • nzvikram created a new valuation of $3.12 (undervalued by 24.8%) - over 8 years ago
  • nzvikram created a new valuation of $3.33 (undervalued by 33.2%) - over 8 years ago
  • KWH created a new valuation of $1.53 (overvalued by 32.6%) - almost 9 years ago
  • botis created a new valuation of $1.45 (overvalued by 34.39%) - almost 9 years ago
  • KiwiEMH created a new valuation of $2.52 (undervalued by 1.61%) - almost 9 years ago
  • KiwiEMH created a new valuation of $2.58 (overvalued by 5.49%) - almost 9 years ago
  • KiwiEMH created a new valuation of $2.82 (undervalued by 0.0%) - almost 9 years ago
  • Patricko created a new valuation of $1.37 (overvalued by 51.25%) - 9 years ago
  • KiwiEMH created a new valuation of $3.16 (overvalued by 0.94%) - 9 years ago
  • KiwiEMH created a new valuation of $3.12 (overvalued by 4.88%) - 9 years ago
  • GordonGekko created a new valuation of $2.98 (overvalued by 12.35%) - 9 years ago
  • KiwiEMH created a new valuation of $3.24 (overvalued by 11.96%) - 9 years ago
  • KiwiEMH created a new valuation of $3.43 (overvalued by 0.58%) - over 9 years ago
  • TheCrunchBlog created a new valuation of $3.40 (overvalued by 8.85%) - over 9 years ago
  • tiger created a new valuation of $3.25 (overvalued by 14.25%) - over 9 years ago
  • GordonGekko created a new valuation of $4.00 (undervalued by 5.54%) - over 9 years ago

Comments

Valuing Telecom Corporation of NZ

This valuation form part of this blog post:

http://blog.valuecruncher.com/2008/06/valuing-telecom-corporation-of-new-zealand-tel/

Our assumptions of revenues for the next three years are NZ$5.625 billion in 2008 decreasing to NZ$5.575 billion in 2010. We have projected EBITDA margins decreasing from 33.5% in 2008 to 31.5% in 2010.

We have used a terminal growth rate of 1%. Our view is that TEL will start to see modest growth post 2010 and 1% is a reasonable estimate. This assumption has a significant impact on the valuation. If you believe TEL has better future prospects – this will positively impact the valuation.

We have used a WACC (discount rate) of 10 %. The WACC (discount rate) has a material impact on a discounted cash flow valuation (as does the terminal growth rate). PricewaterhouseCoopers December 2007 cost of capital report gives TEL a calculated WACC of 11.3%. In our opinion this is too high. In 2004 PricewaterhouseCoopers calculated a TEL WACC between 9.8% and 10.5% (with 10.1% as the point estimate). In our opinion this 2004 analysis appears more reasonable. The December 2007 cost of capital report gives a New Zealand market WACC of 10.3% – TEL having a WACC 1% higher seems wrong.

We used a terminal capital expenditure number of NZ$750 million. In our opinion capital expenditure should stabilise around this number.

By TheCrunchBlog, about 9 years ago

The boring details

All amounts in millions Figures
Enterprise Value: 0
Net Debt (Long-term borrowings less cash): 845
Equity Value: 6,794
Number of Shares Outstanding: 1,821,000,000
Calculated value per share: $3.40

Enterprise Value is the present value of the post-tax cash flows for a business into the future.


Calcuation of EV

Where:

  • C1, C2, C3 - the cash flow in period 1, 2, 3, ...
  • r - the discount rate

To capture the cash flows into the future a terminal value is calculated via a perpetuity calculation -
based on the final years forecast post-tax free cash flow.


Perpetuity

Where:

  • Cn - the cash flow in the final forecast period.
  • LTG - the long-term growth rate
  • r - the discount rate
  • g - the terminal growth rate

The Capital Asset Pricing Model (CAPM) is used to determine the equity component in the discount rate.


CAPM model

Where:

  • rt - the risk free rate
  • t - the tax rate
  • B - the beta of the company
  • MRP - the Market Risk Premium

Valuecruncher uses an estimate of Weighted Average Cost of Capital (WACC) to determine the discount rate in the calculation.