Intrinsic value of BT Group ADR - BT

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$18.15

  Intrinsic Value

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  Value-price divergence*

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*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 35.6

 

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
  33.60
  30.74
  28.17
  25.85
  23.76
  21.89
  20.20
  18.68
  17.31
  16.08
  14.97
  13.97
  13.08
  12.27
  11.54
  10.89
  10.30
  9.77
  9.29
  8.86
  8.48
  8.13
  7.82
  7.53
  7.28
  7.05
  6.85
  6.66
  6.50
  6.35
Revenue, $m
  29,276
  25,262
  33,028
  42,331
  53,273
  65,933
  80,365
  96,598
  114,641
  134,487
  156,113
  179,487
  204,570
  231,322
  259,705
  289,682
  321,224
  354,309
  388,924
  425,066
  462,741
  501,968
  542,775
  585,201
  629,294
  675,115
  722,733
  772,224
  823,678
  877,191
  932,867
Variable operating expenses, $m
 
  17,507
  22,888
  29,335
  36,918
  45,692
  55,693
  66,942
  79,446
  93,200
  108,186
  124,384
  141,767
  160,306
  179,976
  200,750
  222,608
  245,536
  269,524
  294,571
  320,680
  347,864
  376,143
  405,544
  436,101
  467,855
  500,854
  535,151
  570,809
  607,893
  646,477
Fixed operating expenses, $m
 
  2,420
  2,481
  2,543
  2,606
  2,671
  2,738
  2,806
  2,877
  2,949
  3,022
  3,098
  3,175
  3,255
  3,336
  3,419
  3,505
  3,593
  3,682
  3,774
  3,869
  3,965
  4,065
  4,166
  4,270
  4,377
  4,487
  4,599
  4,714
  4,832
  4,952
Total operating expenses, $m
  25,682
  19,927
  25,369
  31,878
  39,524
  48,363
  58,431
  69,748
  82,323
  96,149
  111,208
  127,482
  144,942
  163,561
  183,312
  204,169
  226,113
  249,129
  273,206
  298,345
  324,549
  351,829
  380,208
  409,710
  440,371
  472,232
  505,341
  539,750
  575,523
  612,725
  651,429
Operating income, $m
  3,595
  5,336
  7,659
  10,453
  13,749
  17,570
  21,934
  26,849
  32,318
  38,339
  44,904
  52,005
  59,628
  67,761
  76,393
  85,513
  95,111
  105,180
  115,717
  126,721
  138,193
  150,139
  162,567
  175,490
  188,923
  202,883
  217,392
  232,474
  248,155
  264,466
  281,438
EBITDA, $m
  7,937
  8,698
  12,056
  16,088
  20,840
  26,347
  32,632
  39,708
  47,579
  56,241
  65,685
  75,897
  86,859
  98,554
  110,964
  124,074
  137,871
  152,344
  167,489
  183,303
  199,790
  216,958
  234,819
  253,389
  272,691
  292,751
  313,599
  335,269
  357,799
  381,233
  405,616
Interest expense (income), $m
  765
  496
  937
  1,474
  2,119
  2,877
  3,754
  4,753
  5,878
  7,128
  8,502
  10,000
  11,619
  13,357
  15,210
  17,176
  19,252
  21,437
  23,728
  26,126
  28,630
  31,239
  33,956
  36,783
  39,722
  42,776
  45,950
  49,248
  52,676
  56,240
  59,947
Earnings before tax, $m
  2,862
  4,839
  6,723
  8,979
  11,630
  14,693
  18,180
  22,096
  26,441
  31,211
  36,402
  42,004
  48,009
  54,405
  61,184
  68,337
  75,859
  83,744
  91,989
  100,595
  109,563
  118,900
  128,611
  138,708
  149,201
  160,108
  171,443
  183,226
  195,479
  208,226
  221,491
Tax expense, $m
  542
  1,307
  1,815
  2,424
  3,140
  3,967
  4,909
  5,966
  7,139
  8,427
  9,829
  11,341
  12,962
  14,689
  16,520
  18,451
  20,482
  22,611
  24,837
  27,161
  29,582
  32,103
  34,725
  37,451
  40,284
  43,229
  46,290
  49,471
  52,779
  56,221
  59,803
Net income, $m
  2,320
  3,533
  4,907
  6,554
  8,490
  10,726
  13,272
  16,130
  19,302
  22,784
  26,574
  30,663
  35,046
  39,715
  44,664
  49,886
  55,377
  61,133
  67,152
  73,434
  79,981
  86,797
  93,886
  101,256
  108,917
  116,878
  125,153
  133,755
  142,700
  152,005
  161,689

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
  52,195
  68,240
  87,460
  110,068
  136,225
  166,042
  199,582
  236,862
  277,866
  322,548
  370,840
  422,665
  477,939
  536,581
  598,517
  663,687
  732,044
  803,562
  878,235
  956,077
  1,037,124
  1,121,436
  1,209,092
  1,300,195
  1,394,866
  1,493,249
  1,595,505
  1,701,815
  1,812,378
  1,927,411
Adjusted assets (=assets-cash), $m
  49,022
  52,195
  68,240
  87,460
  110,068
  136,225
  166,042
  199,582
  236,862
  277,866
  322,548
  370,840
  422,665
  477,939
  536,581
  598,517
  663,687
  732,044
  803,562
  878,235
  956,077
  1,037,124
  1,121,436
  1,209,092
  1,300,195
  1,394,866
  1,493,249
  1,595,505
  1,701,815
  1,812,378
  1,927,411
Revenue / Adjusted assets
  0.597
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
  0.484
Average production assets, $m
  18,527
  20,513
  26,819
  34,373
  43,258
  53,538
  65,256
  78,437
  93,089
  109,204
  126,764
  145,743
  166,111
  187,834
  210,881
  235,222
  260,834
  287,699
  315,806
  345,153
  375,746
  407,598
  440,733
  475,183
  510,987
  548,194
  586,859
  627,046
  668,827
  712,279
  757,488
Working capital, $m
  -4,924
  -4,370
  -5,714
  -7,323
  -9,216
  -11,406
  -13,903
  -16,711
  -19,833
  -23,266
  -27,008
  -31,051
  -35,391
  -40,019
  -44,929
  -50,115
  -55,572
  -61,296
  -67,284
  -73,536
  -80,054
  -86,840
  -93,900
  -101,240
  -108,868
  -116,795
  -125,033
  -133,595
  -142,496
  -151,754
  -161,386
Total debt, $m
  15,455
  20,812
  32,766
  47,085
  63,928
  83,415
  105,629
  130,615
  158,389
  188,937
  222,225
  258,203
  296,812
  337,992
  381,680
  427,822
  476,374
  527,300
  580,581
  636,212
  694,204
  754,585
  817,397
  882,701
  950,572
  1,021,103
  1,094,398
  1,170,578
  1,249,779
  1,332,148
  1,417,848
Total liabilities, $m
  41,379
  38,885
  50,839
  65,158
  82,001
  101,488
  123,702
  148,688
  176,462
  207,010
  240,298
  276,276
  314,885
  356,065
  399,753
  445,895
  494,447
  545,373
  598,654
  654,285
  712,277
  772,658
  835,470
  900,774
  968,645
  1,039,176
  1,112,471
  1,188,651
  1,267,852
  1,350,221
  1,435,921
Total equity, $m
  10,133
  13,310
  17,401
  22,302
  28,067
  34,737
  42,341
  50,893
  60,400
  70,856
  82,250
  94,564
  107,780
  121,874
  136,828
  152,622
  169,240
  186,671
  204,908
  223,950
  243,800
  264,467
  285,966
  308,319
  331,550
  355,691
  380,779
  406,854
  433,963
  462,156
  491,490
Total liabilities and equity, $m
  51,512
  52,195
  68,240
  87,460
  110,068
  136,225
  166,043
  199,581
  236,862
  277,866
  322,548
  370,840
  422,665
  477,939
  536,581
  598,517
  663,687
  732,044
  803,562
  878,235
  956,077
  1,037,125
  1,121,436
  1,209,093
  1,300,195
  1,394,867
  1,493,250
  1,595,505
  1,701,815
  1,812,377
  1,927,411
Debt-to-equity ratio
  1.525
  1.560
  1.880
  2.110
  2.280
  2.400
  2.490
  2.570
  2.620
  2.670
  2.700
  2.730
  2.750
  2.770
  2.790
  2.800
  2.810
  2.820
  2.830
  2.840
  2.850
  2.850
  2.860
  2.860
  2.870
  2.870
  2.870
  2.880
  2.880
  2.880
  2.880
Adjusted equity ratio
  0.156
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,320
  3,533
  4,907
  6,554
  8,490
  10,726
  13,272
  16,130
  19,302
  22,784
  26,574
  30,663
  35,046
  39,715
  44,664
  49,886
  55,377
  61,133
  67,152
  73,434
  79,981
  86,797
  93,886
  101,256
  108,917
  116,878
  125,153
  133,755
  142,700
  152,005
  161,689
Depreciation, amort., depletion, $m
  4,342
  3,363
  4,397
  5,635
  7,091
  8,777
  10,698
  12,859
  15,260
  17,902
  20,781
  23,892
  27,231
  30,792
  34,571
  38,561
  42,760
  47,164
  51,772
  56,583
  61,598
  66,819
  72,251
  77,899
  83,768
  89,868
  96,206
  102,794
  109,644
  116,767
  124,178
Funds from operations, $m
  6,769
  6,896
  9,304
  12,189
  15,581
  19,503
  23,969
  28,988
  34,562
  40,687
  47,355
  54,556
  62,278
  70,508
  79,235
  88,447
  98,137
  108,297
  118,923
  130,017
  141,579
  153,616
  166,137
  179,155
  192,685
  206,746
  221,360
  236,550
  252,344
  268,772
  285,867
Change in working capital, $m
  -737
  -1,099
  -1,343
  -1,609
  -1,893
  -2,190
  -2,497
  -2,808
  -3,122
  -3,433
  -3,741
  -4,044
  -4,339
  -4,628
  -4,910
  -5,186
  -5,457
  -5,724
  -5,988
  -6,252
  -6,518
  -6,786
  -7,060
  -7,340
  -7,628
  -7,927
  -8,238
  -8,562
  -8,902
  -9,258
  -9,632
Cash from operations, $m
  7,506
  8,073
  10,647
  13,799
  17,474
  21,693
  26,466
  31,797
  37,684
  44,120
  51,096
  58,599
  66,617
  75,136
  84,145
  93,633
  103,593
  114,020
  124,912
  136,269
  148,097
  160,402
  173,197
  186,495
  200,314
  214,673
  229,597
  245,112
  261,245
  278,030
  295,499
Maintenance CAPEX, $m
  0
  -2,518
  -3,363
  -4,397
  -5,635
  -7,091
  -8,777
  -10,698
  -12,859
  -15,260
  -17,902
  -20,781
  -23,892
  -27,231
  -30,792
  -34,571
  -38,561
  -42,760
  -47,164
  -51,772
  -56,583
  -61,598
  -66,819
  -72,251
  -77,899
  -83,768
  -89,868
  -96,206
  -102,794
  -109,644
  -116,767
New CAPEX, $m
  -3,823
  -5,156
  -6,306
  -7,554
  -8,885
  -10,280
  -11,718
  -13,181
  -14,652
  -16,115
  -17,560
  -18,979
  -20,368
  -21,723
  -23,047
  -24,341
  -25,612
  -26,865
  -28,107
  -29,347
  -30,592
  -31,852
  -33,135
  -34,450
  -35,804
  -37,207
  -38,665
  -40,187
  -41,781
  -43,452
  -45,209
Cash from investing activities, $m
  -2,016
  -7,674
  -9,669
  -11,951
  -14,520
  -17,371
  -20,495
  -23,879
  -27,511
  -31,375
  -35,462
  -39,760
  -44,260
  -48,954
  -53,839
  -58,912
  -64,173
  -69,625
  -75,271
  -81,119
  -87,175
  -93,450
  -99,954
  -106,701
  -113,703
  -120,975
  -128,533
  -136,393
  -144,575
  -153,096
  -161,976
Free cash flow, $m
  5,490
  400
  979
  1,848
  2,954
  4,322
  5,971
  7,918
  10,174
  12,745
  15,633
  18,839
  22,357
  26,182
  30,306
  34,721
  39,420
  44,396
  49,641
  55,151
  60,922
  66,952
  73,242
  79,794
  86,611
  93,698
  101,064
  108,718
  116,670
  124,934
  133,523
Issuance/(repayment) of debt, $m
  -2,943
  9,787
  11,953
  14,319
  16,843
  19,487
  22,214
  24,987
  27,774
  30,548
  33,288
  35,978
  38,610
  41,179
  43,688
  46,143
  48,551
  50,926
  53,281
  55,631
  57,992
  60,380
  62,812
  65,304
  67,872
  70,530
  73,295
  76,181
  79,201
  82,369
  85,700
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
  9,787
  11,953
  14,319
  16,843
  19,487
  22,214
  24,987
  27,774
  30,548
  33,288
  35,978
  38,610
  41,179
  43,688
  46,143
  48,551
  50,926
  53,281
  55,631
  57,992
  60,380
  62,812
  65,304
  67,872
  70,530
  73,295
  76,181
  79,201
  82,369
  85,700
Total cash flow (excl. dividends), $m
  1,808
  10,187
  12,932
  16,167
  19,797
  23,809
  28,185
  32,905
  37,947
  43,293
  48,921
  54,817
  60,967
  67,361
  73,994
  80,864
  87,972
  95,322
  102,922
  110,782
  118,914
  127,333
  136,055
  145,098
  154,482
  164,229
  174,359
  184,899
  195,871
  207,303
  219,223
Retained Cash Flow (-), $m
  2,160
  -3,376
  -4,091
  -4,901
  -5,765
  -6,670
  -7,603
  -8,553
  -9,507
  -10,456
  -11,394
  -12,315
  -13,215
  -14,095
  -14,954
  -15,794
  -16,618
  -17,431
  -18,237
  -19,042
  -19,850
  -20,667
  -21,500
  -22,352
  -23,231
  -24,141
  -25,088
  -26,075
  -27,109
  -28,194
  -29,334
Prev. year cash balance distribution, $m
 
  178
  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
 
  6,990
  8,841
  11,266
  14,032
  17,139
  20,581
  24,352
  28,441
  32,837
  37,527
  42,502
  47,751
  53,266
  59,040
  65,070
  71,353
  77,891
  84,685
  91,740
  99,064
  106,666
  114,555
  122,746
  131,251
  140,087
  149,272
  158,823
  168,762
  179,110
  189,889
Discount rate, %
 
  5.10
  5.36
  5.62
  5.90
  6.20
  6.51
  6.83
  7.18
  7.54
  7.91
  8.31
  8.72
  9.16
  9.62
  10.10
  10.60
  11.13
  11.69
  12.27
  12.89
  13.53
  14.21
  14.92
  15.66
  16.45
  17.27
  18.13
  19.04
  19.99
  20.99
PV of cash for distribution, $m
 
  6,650
  7,965
  9,561
  11,155
  12,687
  14,098
  15,330
  16,336
  17,077
  17,525
  17,667
  17,504
  17,048
  16,326
  15,371
  14,229
  12,947
  11,577
  10,169
  8,770
  7,423
  6,161
  5,012
  3,993
  3,112
  2,372
  1,765
  1,282
  907
  625
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 77.9
Price to Sales 6.2
Price to Book 17.8
Price to Tangible Book
Price to Cash Flow 24.1
Price to Free Cash Flow 49.1
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 $18909 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 33.6% 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 5.1%, 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 69.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $2361 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 4.5% 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 81.2%.

Life of production assets of 6.1 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 -17.3%. 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 - $10112 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 $35.6 billion.


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COMPANY NEWS

▶ 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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