Intrinsic value of Cellcom Israel - CEL

Previous Close

$9.30

  Intrinsic Value

$8.46

stock screener

  Rating & Target

hold

-9%

  Value-price divergence*

-91%

Previous close

$9.30

 
Intrinsic value

$8.46

 
Up/down potential

-9%

 
Rating

hold

 
Value-price divergence*

-91%

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

We calculate the intrinsic value of CEL 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 2016), $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 0.9

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -3.71
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  1,089
  1,111
  1,136
  1,166
  1,198
  1,235
  1,275
  1,318
  1,365
  1,416
  1,470
  1,528
  1,590
  1,656
  1,726
  1,801
  1,880
  1,963
  2,051
  2,145
  2,243
  2,347
  2,457
  2,573
  2,694
  2,823
  2,958
  3,100
  3,249
  3,407
  3,572
Variable operating expenses, $m
 
  1,028
  1,051
  1,078
  1,107
  1,140
  1,176
  1,216
  1,258
  1,304
  1,353
  1,383
  1,439
  1,499
  1,563
  1,630
  1,702
  1,777
  1,857
  1,942
  2,031
  2,125
  2,224
  2,329
  2,439
  2,555
  2,678
  2,806
  2,942
  3,084
  3,234
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
  1,005
  1,028
  1,051
  1,078
  1,107
  1,140
  1,176
  1,216
  1,258
  1,304
  1,353
  1,383
  1,439
  1,499
  1,563
  1,630
  1,702
  1,777
  1,857
  1,942
  2,031
  2,125
  2,224
  2,329
  2,439
  2,555
  2,678
  2,806
  2,942
  3,084
  3,234
Operating income, $m
  84
  83
  85
  88
  91
  94
  98
  102
  107
  111
  117
  145
  151
  157
  163
  170
  178
  186
  194
  203
  212
  222
  233
  244
  255
  267
  280
  293
  308
  322
  338
EBITDA, $m
  228
  211
  215
  221
  227
  234
  242
  250
  259
  268
  279
  290
  301
  314
  327
  341
  356
  372
  389
  407
  425
  445
  466
  488
  511
  535
  561
  588
  616
  646
  677
Interest expense (income), $m
  50
  38
  39
  41
  42
  44
  46
  48
  51
  53
  56
  59
  62
  65
  69
  73
  77
  81
  86
  91
  96
  101
  107
  113
  119
  126
  133
  140
  148
  156
  164
Earnings before tax, $m
  43
  45
  46
  47
  49
  50
  52
  54
  56
  58
  61
  86
  89
  91
  94
  98
  101
  105
  109
  113
  117
  121
  126
  131
  136
  142
  147
  154
  160
  167
  174
Tax expense, $m
  2
  12
  12
  13
  13
  14
  14
  15
  15
  16
  16
  23
  24
  25
  26
  26
  27
  28
  29
  30
  32
  33
  34
  35
  37
  38
  40
  41
  43
  45
  47
Net income, $m
  40
  33
  33
  34
  36
  37
  38
  39
  41
  43
  44
  63
  65
  67
  69
  71
  74
  76
  79
  82
  85
  89
  92
  96
  99
  103
  108
  112
  117
  122
  127

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  412
  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
  1,802
  1,419
  1,451
  1,489
  1,530
  1,577
  1,628
  1,683
  1,743
  1,808
  1,877
  1,951
  2,031
  2,115
  2,205
  2,300
  2,400
  2,507
  2,620
  2,739
  2,865
  2,998
  3,138
  3,285
  3,441
  3,605
  3,777
  3,959
  4,150
  4,351
  4,562
Adjusted assets (=assets-cash), $m
  1,390
  1,419
  1,451
  1,489
  1,530
  1,577
  1,628
  1,683
  1,743
  1,808
  1,877
  1,951
  2,031
  2,115
  2,205
  2,300
  2,400
  2,507
  2,620
  2,739
  2,865
  2,998
  3,138
  3,285
  3,441
  3,605
  3,777
  3,959
  4,150
  4,351
  4,562
Revenue / Adjusted assets
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
  0.783
Average production assets, $m
  569
  580
  593
  608
  626
  644
  665
  688
  712
  739
  767
  798
  830
  864
  901
  940
  981
  1,025
  1,071
  1,120
  1,171
  1,225
  1,283
  1,343
  1,406
  1,473
  1,544
  1,618
  1,696
  1,778
  1,865
Working capital, $m
  290
  113
  116
  119
  122
  126
  130
  134
  139
  144
  150
  156
  162
  169
  176
  184
  192
  200
  209
  219
  229
  239
  251
  262
  275
  288
  302
  316
  331
  347
  364
Total debt, $m
  1,009
  801
  829
  862
  898
  938
  983
  1,031
  1,083
  1,140
  1,200
  1,265
  1,334
  1,407
  1,485
  1,568
  1,656
  1,749
  1,847
  1,951
  2,060
  2,176
  2,298
  2,427
  2,562
  2,705
  2,855
  3,013
  3,180
  3,355
  3,539
Total liabilities, $m
  1,444
  1,236
  1,264
  1,297
  1,333
  1,373
  1,418
  1,466
  1,518
  1,575
  1,635
  1,700
  1,769
  1,842
  1,920
  2,003
  2,091
  2,184
  2,282
  2,386
  2,495
  2,611
  2,733
  2,862
  2,997
  3,140
  3,290
  3,448
  3,615
  3,790
  3,974
Total equity, $m
  358
  183
  187
  192
  197
  203
  210
  217
  225
  233
  242
  252
  262
  273
  284
  297
  310
  323
  338
  353
  370
  387
  405
  424
  444
  465
  487
  511
  535
  561
  589
Total liabilities and equity, $m
  1,802
  1,419
  1,451
  1,489
  1,530
  1,576
  1,628
  1,683
  1,743
  1,808
  1,877
  1,952
  2,031
  2,115
  2,204
  2,300
  2,401
  2,507
  2,620
  2,739
  2,865
  2,998
  3,138
  3,286
  3,441
  3,605
  3,777
  3,959
  4,150
  4,351
  4,563
Debt-to-equity ratio
  2.818
  4.370
  4.430
  4.490
  4.550
  4.610
  4.680
  4.750
  4.820
  4.890
  4.960
  5.020
  5.090
  5.160
  5.220
  5.290
  5.350
  5.410
  5.460
  5.520
  5.570
  5.630
  5.680
  5.730
  5.770
  5.820
  5.860
  5.900
  5.940
  5.980
  6.010
Adjusted equity ratio
  -0.039
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129
  0.129

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  40
  33
  33
  34
  36
  37
  38
  39
  41
  43
  44
  63
  65
  67
  69
  71
  74
  76
  79
  82
  85
  89
  92
  96
  99
  103
  108
  112
  117
  122
  127
Depreciation, amort., depletion, $m
  144
  128
  130
  133
  136
  140
  143
  148
  152
  157
  162
  145
  151
  157
  164
  171
  178
  186
  195
  204
  213
  223
  233
  244
  256
  268
  281
  294
  308
  323
  339
Funds from operations, $m
  190
  160
  164
  168
  172
  176
  182
  187
  193
  199
  206
  208
  216
  224
  233
  242
  252
  263
  274
  286
  298
  311
  325
  340
  355
  371
  388
  406
  425
  445
  466
Change in working capital, $m
  -21
  2
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
Cash from operations, $m
  211
  158
  161
  165
  168
  173
  177
  183
  188
  194
  201
  202
  209
  217
  226
  235
  244
  254
  265
  276
  288
  301
  314
  328
  343
  358
  375
  392
  410
  429
  449
Maintenance CAPEX, $m
  0
  -103
  -105
  -108
  -111
  -114
  -117
  -121
  -125
  -130
  -134
  -140
  -145
  -151
  -157
  -164
  -171
  -178
  -186
  -195
  -204
  -213
  -223
  -233
  -244
  -256
  -268
  -281
  -294
  -308
  -323
New CAPEX, $m
  -100
  -11
  -13
  -15
  -17
  -19
  -21
  -23
  -25
  -26
  -28
  -30
  -32
  -34
  -37
  -39
  -41
  -44
  -46
  -49
  -51
  -54
  -57
  -60
  -64
  -67
  -70
  -74
  -78
  -82
  -86
Cash from investing activities, $m
  -98
  -114
  -118
  -123
  -128
  -133
  -138
  -144
  -150
  -156
  -162
  -170
  -177
  -185
  -194
  -203
  -212
  -222
  -232
  -244
  -255
  -267
  -280
  -293
  -308
  -323
  -338
  -355
  -372
  -390
  -409
Free cash flow, $m
  113
  44
  42
  42
  41
  40
  39
  39
  39
  38
  38
  32
  32
  32
  32
  32
  32
  32
  32
  33
  33
  33
  34
  34
  35
  36
  36
  37
  38
  38
  39
Issuance/(repayment) of debt, $m
  71
  25
  28
  32
  36
  40
  44
  48
  52
  56
  60
  65
  69
  73
  78
  83
  88
  93
  98
  104
  110
  116
  122
  129
  135
  143
  150
  158
  166
  175
  184
Issuance/(repurchase) of shares, $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
  0
Cash from financing (excl. dividends), $m  
  17
  25
  28
  32
  36
  40
  44
  48
  52
  56
  60
  65
  69
  73
  78
  83
  88
  93
  98
  104
  110
  116
  122
  129
  135
  143
  150
  158
  166
  175
  184
Total cash flow (excl. dividends), $m
  130
  69
  71
  74
  77
  80
  84
  87
  91
  95
  99
  97
  101
  105
  110
  115
  120
  125
  131
  137
  143
  149
  156
  163
  170
  178
  186
  195
  204
  213
  223
Retained Cash Flow (-), $m
  -42
  -4
  -4
  -5
  -5
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
Prev. year cash balance distribution, $m
 
  179
  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
 
  244
  67
  69
  72
  74
  77
  80
  83
  86
  90
  87
  91
  94
  98
  102
  107
  111
  116
  121
  126
  132
  138
  144
  150
  157
  164
  172
  179
  188
  196
Discount rate, %
 
  6.20
  6.51
  6.84
  7.18
  7.54
  7.91
  8.31
  8.72
  9.16
  9.62
  10.10
  10.60
  11.13
  11.69
  12.28
  12.89
  13.53
  14.21
  14.92
  15.67
  16.45
  17.27
  18.14
  19.04
  20.00
  21.00
  22.05
  23.15
  24.30
  25.52
PV of cash for distribution, $m
 
  229
  59
  57
  54
  52
  49
  46
  43
  39
  36
  30
  27
  24
  21
  18
  15
  13
  11
  9
  7
  5
  4
  3
  2
  2
  1
  1
  1
  0
  0
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

Cellcom Israel Ltd. is engaged in the provision of cellular telephone services. The Company offers fixed-line services. The Company operates in two segments: Cellular and Fixed-line. The cellular segment includes the cellular communications services, end user cellular equipment and supplemental services. The fixed-line segment includes landline and long distance telephony services, Internet infrastructure and connectivity services, television services, end user fixed-line equipment and supplemental services. The Company provides a range of cellular services through its second generation (2G), third generation (3G) and fourth generation (4G) network. The Company's services include basic cellular telephony services, text and multimedia messaging, advanced cellular content and data services, and other value-added services. It also offers international roaming services, a range of handsets from various manufacturers, and repair services on most handsets it offers.

FINANCIAL RATIOS  of  Cellcom Israel (CEL)

Valuation Ratios
P/E Ratio 23.4
Price to Sales 0.9
Price to Book 2.6
Price to Tangible Book
Price to Cash Flow 4.4
Price to Free Cash Flow 8.4
Growth Rates
Sales Growth Rate -3.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -6.5%
Cap. Spend. - 3 Yr. Gr. Rate 0.2%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 216.8%
Total Debt to Equity 281.8%
Interest Coverage 2
Management Effectiveness
Return On Assets 5%
Ret/ On Assets - 3 Yr. Avg. 5.5%
Return On Total Capital 3%
Ret/ On T. Cap. - 3 Yr. Avg. 3.6%
Return On Equity 11.9%
Return On Equity - 3 Yr. Avg. 20%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 32.9%
Gross Margin - 3 Yr. Avg. 35.7%
EBITDA Margin 21.8%
EBITDA Margin - 3 Yr. Avg. 24.6%
Operating Margin 7.7%
Oper. Margin - 3 Yr. Avg. 9.9%
Pre-Tax Margin 3.9%
Pre-Tax Margin - 3 Yr. Avg. 5.8%
Net Profit Margin 3.7%
Net Profit Margin - 3 Yr. Avg. 4.6%
Effective Tax Rate 4.7%
Eff/ Tax Rate - 3 Yr. Avg. 18.7%
Payout Ratio 0%

CEL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CEL stock intrinsic value calculation we used $1089 million for the last fiscal year's total revenue generated by Cellcom Israel. The default revenue input number comes from 2016 income statement of Cellcom Israel. 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 CEL stock valuation model: a) initial revenue growth rate of 2% 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 6.2%, whose default value for CEL is calculated based on our internal credit rating of Cellcom Israel, 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 Cellcom Israel.
    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 CEL stock the variable cost ratio is equal to 92.6%.

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 CEL 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 4.9% for Cellcom Israel.

Corporate tax rate of 27% is the nominal tax rate for Cellcom Israel. 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 CEL 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 CEL are equal to 52.2%.

Life of production assets of 5.5 years is the average useful life of capital assets used in Cellcom Israel 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 CEL is equal to 10.2%. 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 - $358 million for Cellcom Israel - 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 101.408 million for Cellcom Israel 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 Cellcom Israel at the current share price and the inputted number of shares is $0.9 billion.

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COMPANY NEWS

▶ Cellcom Israel Announces 150,000 Cellcom tv Households   [Sep-04-17 05:26AM  PR Newswire]
▶ Cellcom posts 2Q profit   [Aug-04-17 11:48PM  Associated Press]
▶ ETFs with exposure to Cellcom Israel Ltd. : May 31, 2017   [May-31-17 12:24PM  Capital Cube]
▶ Cellcom posts 1Q profit   [May-24-17 05:01AM  Associated Press]
▶ Biotechnology Gets A Shot In the Arm   [Mar-21-17 12:08PM  Barrons.com]
▶ Biotechnology Gets A Shot In the Arm   [12:08PM  at Barrons.com]
▶ Cellcom posts 4Q profit   [Mar-15-17 05:00AM  Associated Press]
▶ Cellcom Israel Announces Current Status Re Golan Telecom   [Nov-27-16 02:14AM  PR Newswire]
▶ Cellcom Israel Announces Developments Re Golan Telecom   [Sep-21-16 01:57AM  PR Newswire]
▶ Cellcom posts 2Q profit   [05:01AM  AP]
Financial statements of CEL
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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