Intrinsic value of BT Group ADR - BT

Previous Close

$20.35

  Intrinsic Value

$35.59

stock screener

  Rating & Target

str. buy

+75%

  Value-price divergence*

+894%

Previous close

$20.35

 
Intrinsic value

$35.59

 
Up/down potential

+75%

 
Rating

str. buy

 
Value-price divergence*

+894%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of BT stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2017), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 40.0

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  27.56
  8.60
  8.24
  7.92
  7.62
  7.36
  7.13
  6.91
  6.72
  6.55
  6.39
  6.26
  6.13
  6.02
  5.92
  5.82
  5.74
  5.67
  5.60
  5.54
  5.49
  5.44
  5.39
  5.35
  5.32
  5.29
  5.26
  5.23
  5.21
  5.19
  5.17
Revenue, $m
  29,276
  31,794
  34,414
  37,138
  39,969
  42,912
  45,970
  49,148
  52,451
  55,887
  59,460
  63,180
  67,052
  71,087
  75,292
  79,676
  84,251
  89,025
  94,011
  99,220
  104,663
  110,354
  116,307
  122,534
  129,052
  135,875
  143,020
  150,504
  158,344
  166,560
  175,170
Variable operating expenses, $m
 
  26,103
  28,254
  30,490
  32,815
  35,231
  37,741
  40,350
  43,062
  45,883
  48,817
  51,871
  55,050
  58,362
  61,814
  65,414
  69,170
  73,090
  77,183
  81,459
  85,928
  90,601
  95,488
  100,601
  105,952
  111,554
  117,420
  123,564
  130,000
  136,745
  143,815
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  25,682
  26,103
  28,254
  30,490
  32,815
  35,231
  37,741
  40,350
  43,062
  45,883
  48,817
  51,871
  55,050
  58,362
  61,814
  65,414
  69,170
  73,090
  77,183
  81,459
  85,928
  90,601
  95,488
  100,601
  105,952
  111,554
  117,420
  123,564
  130,000
  136,745
  143,815
Operating income, $m
  3,595
  5,691
  6,160
  6,648
  7,154
  7,681
  8,229
  8,797
  9,389
  10,004
  10,643
  11,309
  12,002
  12,725
  13,477
  14,262
  15,081
  15,936
  16,828
  17,760
  18,735
  19,753
  20,819
  21,934
  23,100
  24,322
  25,601
  26,940
  28,344
  29,814
  31,355
EBITDA, $m
  7,937
  7,704
  8,338
  8,998
  9,685
  10,398
  11,138
  11,908
  12,709
  13,541
  14,407
  15,308
  16,247
  17,224
  18,243
  19,306
  20,414
  21,571
  22,779
  24,041
  25,360
  26,739
  28,181
  29,690
  31,269
  32,923
  34,654
  36,467
  38,367
  40,357
  42,444
Interest expense (income), $m
  765
  596
  750
  910
  1,077
  1,250
  1,429
  1,616
  1,811
  2,012
  2,222
  2,441
  2,668
  2,905
  3,151
  3,408
  3,676
  3,955
  4,247
  4,552
  4,870
  5,203
  5,550
  5,914
  6,295
  6,693
  7,110
  7,546
  8,004
  8,483
  8,985
Earnings before tax, $m
  2,862
  5,095
  5,410
  5,737
  6,078
  6,432
  6,799
  7,181
  7,578
  7,991
  8,421
  8,869
  9,334
  9,820
  10,326
  10,854
  11,405
  11,980
  12,581
  13,209
  13,865
  14,551
  15,269
  16,020
  16,806
  17,629
  18,491
  19,394
  20,340
  21,332
  22,371
Tax expense, $m
  542
  1,376
  1,461
  1,549
  1,641
  1,737
  1,836
  1,939
  2,046
  2,158
  2,274
  2,394
  2,520
  2,651
  2,788
  2,931
  3,079
  3,235
  3,397
  3,566
  3,743
  3,929
  4,122
  4,325
  4,538
  4,760
  4,993
  5,236
  5,492
  5,760
  6,040
Net income, $m
  2,320
  3,719
  3,949
  4,188
  4,437
  4,695
  4,963
  5,242
  5,532
  5,834
  6,147
  6,474
  6,814
  7,169
  7,538
  7,923
  8,326
  8,745
  9,184
  9,642
  10,121
  10,622
  11,146
  11,694
  12,268
  12,869
  13,498
  14,158
  14,848
  15,572
  16,331

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,490
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  51,512
  53,256
  57,644
  62,207
  66,950
  71,879
  77,001
  82,324
  87,858
  93,612
  99,599
  105,829
  112,316
  119,073
  126,117
  133,461
  141,123
  149,121
  157,472
  166,197
  175,315
  184,848
  194,819
  205,250
  216,168
  227,597
  239,565
  252,100
  265,233
  278,994
  293,417
Adjusted assets (=assets-cash), $m
  49,022
  53,256
  57,644
  62,207
  66,950
  71,879
  77,001
  82,324
  87,858
  93,612
  99,599
  105,829
  112,316
  119,073
  126,117
  133,461
  141,123
  149,121
  157,472
  166,197
  175,315
  184,848
  194,819
  205,250
  216,168
  227,597
  239,565
  252,100
  265,233
  278,994
  293,417
Revenue / Adjusted assets
  0.597
  0.597
  0.597
  0.597
  0.597
  0.597
  0.597
  0.597
  0.597
  0.597
  0.597
  0.597
  0.597
  0.597
  0.597
  0.597
  0.597
  0.597
  0.597
  0.597
  0.597
  0.597
  0.597
  0.597
  0.597
  0.597
  0.597
  0.597
  0.597
  0.597
  0.597
Average production assets, $m
  18,527
  20,125
  21,784
  23,508
  25,301
  27,163
  29,099
  31,110
  33,202
  35,376
  37,638
  39,993
  42,444
  44,998
  47,660
  50,435
  53,331
  56,353
  59,509
  62,806
  66,252
  69,854
  73,622
  77,564
  81,690
  86,009
  90,532
  95,269
  100,232
  105,432
  110,883
Working capital, $m
  -4,924
  -3,179
  -3,441
  -3,714
  -3,997
  -4,291
  -4,597
  -4,915
  -5,245
  -5,589
  -5,946
  -6,318
  -6,705
  -7,109
  -7,529
  -7,968
  -8,425
  -8,903
  -9,401
  -9,922
  -10,466
  -11,035
  -11,631
  -12,253
  -12,905
  -13,588
  -14,302
  -15,050
  -15,834
  -16,656
  -17,517
Total debt, $m
  15,455
  16,308
  19,788
  23,406
  27,167
  31,076
  35,138
  39,359
  43,747
  48,311
  53,058
  57,998
  63,142
  68,501
  74,087
  79,911
  85,987
  92,329
  98,952
  105,870
  113,101
  120,660
  128,567
  136,839
  145,497
  154,560
  164,051
  173,991
  184,406
  195,318
  206,756
Total liabilities, $m
  41,379
  42,232
  45,712
  49,330
  53,091
  57,000
  61,062
  65,283
  69,671
  74,235
  78,982
  83,922
  89,066
  94,425
  100,011
  105,835
  111,911
  118,253
  124,876
  131,794
  139,025
  146,584
  154,491
  162,763
  171,421
  180,484
  189,975
  199,915
  210,330
  221,242
  232,680
Total equity, $m
  10,133
  11,024
  11,932
  12,877
  13,859
  14,879
  15,939
  17,041
  18,187
  19,378
  20,617
  21,907
  23,249
  24,648
  26,106
  27,626
  29,213
  30,868
  32,597
  34,403
  36,290
  38,264
  40,327
  42,487
  44,747
  47,113
  49,590
  52,185
  54,903
  57,752
  60,737
Total liabilities and equity, $m
  51,512
  53,256
  57,644
  62,207
  66,950
  71,879
  77,001
  82,324
  87,858
  93,613
  99,599
  105,829
  112,315
  119,073
  126,117
  133,461
  141,124
  149,121
  157,473
  166,197
  175,315
  184,848
  194,818
  205,250
  216,168
  227,597
  239,565
  252,100
  265,233
  278,994
  293,417
Debt-to-equity ratio
  1.525
  1.480
  1.660
  1.820
  1.960
  2.090
  2.200
  2.310
  2.410
  2.490
  2.570
  2.650
  2.720
  2.780
  2.840
  2.890
  2.940
  2.990
  3.040
  3.080
  3.120
  3.150
  3.190
  3.220
  3.250
  3.280
  3.310
  3.330
  3.360
  3.380
  3.400
Adjusted equity ratio
  0.156
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,320
  3,719
  3,949
  4,188
  4,437
  4,695
  4,963
  5,242
  5,532
  5,834
  6,147
  6,474
  6,814
  7,169
  7,538
  7,923
  8,326
  8,745
  9,184
  9,642
  10,121
  10,622
  11,146
  11,694
  12,268
  12,869
  13,498
  14,158
  14,848
  15,572
  16,331
Depreciation, amort., depletion, $m
  4,342
  2,013
  2,178
  2,351
  2,530
  2,716
  2,910
  3,111
  3,320
  3,538
  3,764
  3,999
  4,244
  4,500
  4,766
  5,044
  5,333
  5,635
  5,951
  6,281
  6,625
  6,985
  7,362
  7,756
  8,169
  8,601
  9,053
  9,527
  10,023
  10,543
  11,088
Funds from operations, $m
  6,769
  5,732
  6,128
  6,539
  6,967
  7,411
  7,873
  8,353
  8,852
  9,371
  9,911
  10,473
  11,059
  11,668
  12,304
  12,967
  13,659
  14,381
  15,135
  15,923
  16,746
  17,607
  18,508
  19,451
  20,437
  21,470
  22,551
  23,684
  24,871
  26,115
  27,419
Change in working capital, $m
  -737
  -252
  -262
  -272
  -283
  -294
  -306
  -318
  -330
  -344
  -357
  -372
  -387
  -403
  -420
  -438
  -457
  -477
  -499
  -521
  -544
  -569
  -595
  -623
  -652
  -682
  -714
  -748
  -784
  -822
  -861
Cash from operations, $m
  7,506
  5,983
  6,390
  6,812
  7,250
  7,706
  8,179
  8,671
  9,183
  9,715
  10,269
  10,845
  11,446
  12,072
  12,725
  13,405
  14,116
  14,858
  15,633
  16,444
  17,291
  18,177
  19,103
  20,073
  21,089
  22,152
  23,266
  24,433
  25,655
  26,937
  28,280
Maintenance CAPEX, $m
  0
  -1,853
  -2,013
  -2,178
  -2,351
  -2,530
  -2,716
  -2,910
  -3,111
  -3,320
  -3,538
  -3,764
  -3,999
  -4,244
  -4,500
  -4,766
  -5,044
  -5,333
  -5,635
  -5,951
  -6,281
  -6,625
  -6,985
  -7,362
  -7,756
  -8,169
  -8,601
  -9,053
  -9,527
  -10,023
  -10,543
New CAPEX, $m
  -3,823
  -1,598
  -1,658
  -1,724
  -1,792
  -1,863
  -1,936
  -2,012
  -2,091
  -2,175
  -2,262
  -2,354
  -2,451
  -2,554
  -2,662
  -2,775
  -2,896
  -3,022
  -3,156
  -3,297
  -3,446
  -3,603
  -3,768
  -3,942
  -4,126
  -4,319
  -4,523
  -4,737
  -4,963
  -5,200
  -5,450
Cash from investing activities, $m
  -2,016
  -3,451
  -3,671
  -3,902
  -4,143
  -4,393
  -4,652
  -4,922
  -5,202
  -5,495
  -5,800
  -6,118
  -6,450
  -6,798
  -7,162
  -7,541
  -7,940
  -8,355
  -8,791
  -9,248
  -9,727
  -10,228
  -10,753
  -11,304
  -11,882
  -12,488
  -13,124
  -13,790
  -14,490
  -15,223
  -15,993
Free cash flow, $m
  5,490
  2,532
  2,719
  2,909
  3,107
  3,313
  3,527
  3,749
  3,980
  4,220
  4,469
  4,727
  4,995
  5,274
  5,563
  5,864
  6,177
  6,503
  6,842
  7,196
  7,564
  7,949
  8,350
  8,769
  9,207
  9,664
  10,142
  10,642
  11,166
  11,713
  12,286
Issuance/(repayment) of debt, $m
  -2,943
  3,343
  3,480
  3,619
  3,761
  3,909
  4,062
  4,221
  4,388
  4,563
  4,747
  4,940
  5,144
  5,359
  5,585
  5,824
  6,076
  6,342
  6,623
  6,919
  7,231
  7,560
  7,907
  8,272
  8,657
  9,063
  9,491
  9,941
  10,414
  10,913
  11,437
Issuance/(repurchase) of shares, $m
  -165
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -3,728
  3,343
  3,480
  3,619
  3,761
  3,909
  4,062
  4,221
  4,388
  4,563
  4,747
  4,940
  5,144
  5,359
  5,585
  5,824
  6,076
  6,342
  6,623
  6,919
  7,231
  7,560
  7,907
  8,272
  8,657
  9,063
  9,491
  9,941
  10,414
  10,913
  11,437
Total cash flow (excl. dividends), $m
  1,808
  5,875
  6,199
  6,527
  6,868
  7,221
  7,589
  7,971
  8,369
  8,783
  9,216
  9,668
  10,139
  10,633
  11,148
  11,688
  12,253
  12,845
  13,465
  14,114
  14,795
  15,509
  16,257
  17,041
  17,864
  18,727
  19,633
  20,583
  21,580
  22,626
  23,724
Retained Cash Flow (-), $m
  2,160
  -891
  -908
  -945
  -982
  -1,020
  -1,060
  -1,102
  -1,145
  -1,191
  -1,239
  -1,290
  -1,343
  -1,399
  -1,458
  -1,520
  -1,586
  -1,656
  -1,729
  -1,806
  -1,887
  -1,973
  -2,064
  -2,159
  -2,260
  -2,366
  -2,477
  -2,595
  -2,718
  -2,849
  -2,986
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  4,984
  5,290
  5,583
  5,886
  6,201
  6,529
  6,869
  7,223
  7,592
  7,977
  8,378
  8,797
  9,234
  9,690
  10,168
  10,667
  11,189
  11,736
  12,308
  12,908
  13,535
  14,193
  14,882
  15,604
  16,362
  17,156
  17,988
  18,861
  19,777
  20,738
Discount rate, %
 
  5.20
  5.46
  5.73
  6.02
  6.32
  6.64
  6.97
  7.32
  7.68
  8.07
  8.47
  8.89
  9.34
  9.81
  10.30
  10.81
  11.35
  11.92
  12.51
  13.14
  13.80
  14.49
  15.21
  15.97
  16.77
  17.61
  18.49
  19.41
  20.38
  21.40
PV of cash for distribution, $m
 
  4,738
  4,757
  4,723
  4,659
  4,564
  4,440
  4,286
  4,106
  3,900
  3,672
  3,425
  3,164
  2,893
  2,616
  2,338
  2,064
  1,799
  1,546
  1,310
  1,093
  897
  723
  573
  445
  339
  253
  184
  131
  91
  62
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

BT Group plc provides communications services worldwide. The company’s BT Global Services segment offers managed networked IT services to corporate and public sector customers, such as Internet protocol, Ethernet, and Internet virtual private network services; firewalls, Web security, intrusion prevention, and threat monitoring services; collaboration services; contact center services; telehousing and colocation services; and advising, integration, and managed services. Its BT Business segment provides fixed-voice, broadband, mobility, networking, and IT services; fire and security alarm signaling services, surveillance networks, and control room services; directory enquiries, phone book, Website services, operator services, and call handling services; and public, private, and managed payphone services. The company’s BT Consumer segment offers home phone, broadband, TV, mobile, and sports channel services, as well as Wi-Fi services. Its EE segment offers postpaid and prepaid mobile devices, as well as 2G,3G, and 4G mobile services to business customers, MVNO customers, and machine-to-machine devices; sells 4G mobile phones, tablets, and mobile broadband devices; and provides fixed-voice, broadband, and TV services. The company’s BT Wholesale segment provides broadband, Ethernet, media, voice calls, hosted communications, and managed solutions. Its Openreach segment offers fiber-to-the-cabinet, fiber-to-the-premises, wholesale line rental, local loop unbundling, Ethernet access direct, optical spectrum access, flexible co-mingling, passive infrastructure access, and mobile infill infrastructure solutions. BT Group plc retails technology equipment; and provides systems integration, fleet management, payment, audio, video, and Web collaboration services. The company was formerly known as Newgate Telecommunications Limited and changed its name to BT Group plc in September 2001. BT Group plc was incorporated in 2001 and is headquartered in London, the United Kingdom.

FINANCIAL RATIOS  of  BT Group ADR (BT)

Valuation Ratios
P/E Ratio 87.4
Price to Sales 6.9
Price to Book 20
Price to Tangible Book
Price to Cash Flow 27
Price to Free Cash Flow 55
Growth Rates
Sales Growth Rate 27.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 27.5%
Cap. Spend. - 3 Yr. Gr. Rate 5.9%
Financial Strength
Quick Ratio 1
Current Ratio 0.1
LT Debt to Equity 120.9%
Total Debt to Equity 152.5%
Interest Coverage 5
Management Effectiveness
Return On Assets 5.7%
Ret/ On Assets - 3 Yr. Avg. 8%
Return On Total Capital 8.3%
Ret/ On T. Cap. - 3 Yr. Avg. 14.6%
Return On Equity 20.7%
Return On Equity - 3 Yr. Avg. 682.5%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 76.9%
Gross Margin - 3 Yr. Avg. 77%
EBITDA Margin 27.2%
EBITDA Margin - 3 Yr. Avg. 30.6%
Operating Margin 12.3%
Oper. Margin - 3 Yr. Avg. 16%
Pre-Tax Margin 9.8%
Pre-Tax Margin - 3 Yr. Avg. 13.3%
Net Profit Margin 7.9%
Net Profit Margin - 3 Yr. Avg. 11%
Effective Tax Rate 18.9%
Eff/ Tax Rate - 3 Yr. Avg. 17.8%
Payout Ratio 75.2%

BT stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BT stock intrinsic value calculation we used $29276 million for the last fiscal year's total revenue generated by BT Group ADR. The default revenue input number comes from 2017 income statement of BT Group ADR. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our BT stock valuation model: a) initial revenue growth rate of 8.6% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 5.2%, whose default value for BT is calculated based on our internal credit rating of BT Group ADR, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of BT Group ADR.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of BT stock the variable cost ratio is equal to 82.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for BT stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.6% for BT Group ADR.

Corporate tax rate of 27% is the nominal tax rate for BT Group ADR. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the BT stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for BT are equal to 63.3%.

Life of production assets of 10 years is the average useful life of capital assets used in BT Group ADR operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for BT is equal to -10%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $10133 million for BT Group ADR - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 1963.86 million for BT Group ADR is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of BT Group ADR at the current share price and the inputted number of shares is $40.0 billion.

RELATED COMPANIES Price Int.Val. Rating
VOD Vodafone Group 29.56 11.95  str.sell
TEF Telefonica ADR 10.90 10.03  hold
ORAN Orange ADR 16.82 21.69  buy
TI Telecom Italia 9.56 22.00  str.buy

COMPANY NEWS

▶ BT And KPMG Warn Businesses Against Cyber Security Traps   [Jul-10-17 09:43AM  PR Newswire]
▶ PRESS DIGEST- British Business - July 10   [Jul-09-17 07:48PM  Reuters]
▶ PRESS DIGEST- British Business - July 5   [Jul-04-17 07:27PM  Reuters]
▶ ETFs with exposure to BT Group Plc : June 26, 2017   [Jun-26-17 03:28PM  Capital Cube]
▶ PRESS DIGEST- British Business - June 20   [Jun-19-17 07:18PM  Reuters]
▶ Telefonica Leads Europe in Move to Converged Services   [Jun-16-17 07:00AM  Morningstar]
▶ ETFs with exposure to BT Group Plc : June 13, 2017   [Jun-13-17 12:18PM  Capital Cube]
▶ BT to drop auditors PwC, hire KPMG   [06:50AM  Reuters]
▶ ETFs with exposure to BT Group Plc : June 2, 2017   [Jun-02-17 01:56PM  Capital Cube]
▶ BT Group Plc Value Analysis (LONDON:BT.A) : May 30, 2017   [May-30-17 01:01PM  Capital Cube]
▶ PRESS DIGEST- British Business - May 29   [May-28-17 07:51PM  Reuters]
▶ PRESS DIGEST- Financial Times - May 26   [May-25-17 08:14PM  Reuters]
▶ [$$] BT faces potential £232m tax bill in Brazil   [May-22-17 10:05AM  Financial Times]
▶ PRESS DIGEST- British Business - May 12   [May-11-17 07:25PM  Reuters]
▶ BT Group posts 4Q profit   [03:10PM  Associated Press]
▶ [$$] BT Group: operator waiting   [10:34AM  Financial Times]
▶ [$$] BT Cuts 4,000 Jobs and CEO Bonus as Profit Falls   [06:17AM  The Wall Street Journal]
▶ BT Completes Acquisition Of IP Trade   [May-02-17 10:12AM  PR Newswire]
▶ Mining giants race to fill board leadership gaps   [Apr-26-17 04:11AM  Reuters]
▶ Why Brexit Still Poses Risks to the Global Economy   [Apr-19-17 07:38AM  Market Realist]
▶ PRESS DIGEST- British Business - April 17   [Apr-16-17 07:41PM  Reuters]
▶ PRESS DIGEST- British Business - March 28   [Mar-27-17 08:03PM  Reuters]
Stock chart of BT Financial statements of BT Annual reports of BT
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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