Telecom New Zealand - Assessment
This report reflects the research and analysis I've performed on this company. It is provided for informational purposes only and does not constitute personalized financial advice nor an endorsement or solicitation to purchase stock in this or any other company. Please do your own due diligence or hire a financial advisor before making any investment decisions.- Telecom New Zealand research report written 10/06/2007
- Risk Detail
- Possible Upside
- Competitor Review
- Valuation and Assessment
- Management & Performance Targets
** Integrity: Incomplete. Paul Reynolds, CEO, CEO:
That Telecom was able to convince Reynolds to locate to this tiny island for his first head job was considered quite a coup for the organization. While it is premature to assess his performance, Reynolds' previous experience with the separation process is obviously desirable and the government already has good things to say about his input into the process.
** Past Performance: N/M
Telecom has delivered strong returns in the past but in the market's view, the fast-changing environment has shrouded the company's future prospects. It will be interesting to see the organization's ability to compete in this new environment.
Risked Outcome Probabilities:
Probabilities are completely subjective based on my research and judgment. Scores based on multiplying the probability by the projected stock price. Using $17.30 base price and a dividend of $1.93, odds the stock:
- Doubles to $34 - 7%
- Operational separation fears overblown, Australia turns to profitability, CEO Reynolds brings competitive fire to organization, US$ tanks
- 1.31
- Reaches our intrinsic valuation to $22 - 50%
- Company copes with operational separation, EBITDA maintains near current levels, US$ decline "orderly"
- 3.29
- Floats around entry price - 25% (due to opportunity cost, time loss of money, we penalize a flat result)
- EBITDA declines at steady 5-8%, capital investment brings disappointing returns, company loses market share to competitors
- -0.09
- Drops by 25% - 20%
- Company struggles to compete, New Zealand economy tanks and US$ rises against NZ$, continue to sink money into hopeless Aussie market
- -0.59
- Goes to zero - 3%
- Fiscal disaster
- -0.48
Total Score: 3.47
- Performance Measurements:
- Hit guidance/projections:
- EBITDA ~NZ$1.8B, NPAT ~NZ$680M - 720M
- OCF ~NZ$1.5B, FCF ~NZ$569M
- Reduce operating costs outside of regulatory expense.
- Staunch losses from Australian operations or cut loose altogether.
- Meet aggressive operational separation timelines.
- Deliver measurable improvements in customer experience & satisfaction.
- Continued growth in business IT svcs (Gen-I)
- Rollout of new technology (WCDMA, a2dsl+, etc)
- Maintain dividend payout ratio.
DISCLOSURE: Please see our portfolio page for all disclosures
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