Telecom Corp of New Zealand (TEL)
Discount cash flow analysis
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
- Valuecruncher created a new valuation of $1.19 (overvalued by 52.96%) - 15 hours ago
- GordonGekko created a new valuation of $2.19 (undervalued by 14.66%) - 1 year ago
- GordonGekko created a new valuation of $2.34 (undervalued by 4.46%) - over 2 years ago
- GordonGekko created a new valuation of $2.70 (undervalued by 20.54%) - over 2 years ago
- GordonGekko created a new valuation of $2.78 (undervalued by 20.87%) - over 2 years ago
- BrendonDCFV created a new valuation of $1.45 (overvalued by 36.96%) - over 2 years ago
- BrendonDCFV created a new valuation of $1.12 (overvalued by 51.3%) - over 2 years ago
- BrendonDCFV created a new valuation of $2.51 (undervalued by 9.13%) - over 2 years ago
- sambling created a new valuation of $2.93 (undervalued by 24.68%) - over 2 years ago
- DarrylLundy created a new valuation of $2.54 (overvalued by 8.3%) - over 2 years ago
- GordonGekko created a new valuation of $2.96 (undervalued by 13.41%) - over 2 years ago
- GordonGekko created a new valuation of $2.69 (undervalued by 3.86%) - over 2 years ago
- SethWellbourne created a new valuation of $2.54 (undervalued by 9.48%) - over 3 years ago
- GordonGekko created a new valuation of $2.63 (undervalued by 11.91%) - over 3 years ago
- nzvikram created a new valuation of $3.12 (undervalued by 24.8%) - over 3 years ago
- nzvikram created a new valuation of $3.33 (undervalued by 33.2%) - over 3 years ago
- KWH created a new valuation of $1.53 (overvalued by 32.6%) - over 3 years ago
- botis created a new valuation of $1.45 (overvalued by 34.39%) - over 3 years ago
- KiwiEMH created a new valuation of $2.52 (undervalued by 1.61%) - over 3 years ago
- KiwiEMH created a new valuation of $2.58 (overvalued by 5.49%) - over 3 years ago
- KiwiEMH created a new valuation of $2.82 (undervalued by 0.0%) - over 3 years ago
- Patricko created a new valuation of $1.37 (overvalued by 51.25%) - over 3 years ago
- KiwiEMH created a new valuation of $3.16 (overvalued by 0.94%) - over 3 years ago
- KiwiEMH created a new valuation of $3.12 (overvalued by 4.88%) - over 3 years ago
- GordonGekko created a new valuation of $2.98 (overvalued by 12.35%) - over 3 years ago
- KiwiEMH created a new valuation of $3.24 (overvalued by 11.96%) - over 3 years ago
- KiwiEMH created a new valuation of $3.43 (overvalued by 0.58%) - over 4 years ago
- TheCrunchBlog created a new valuation of $3.40 (overvalued by 8.85%) - over 4 years ago
- tiger created a new valuation of $3.25 (overvalued by 14.25%) - over 4 years ago
- GordonGekko created a new valuation of $4.00 (undervalued by 5.54%) - over 4 years ago
Comments
The boring details
| All amounts in millions | Figures |
| Enterprise Value: | 5,453 |
| 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.
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.
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.
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.
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.