Intrinsic value of Telecom Argentina ADR - TEO

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$22.94

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$22.94

 
Intrinsic value

$70.21

 
Up/down potential

+206%

 
Rating

str. buy

 
Value-price divergence* premium content

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

We calculate the intrinsic value of TEO 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 2.2

 

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, %
  31.52
  21.20
  19.58
  18.12
  16.81
  15.63
  14.57
  13.61
  12.75
  11.97
  11.28
  10.65
  10.08
  9.58
  9.12
  8.71
  8.34
  8.00
  7.70
  7.43
  7.19
  6.97
  6.77
  6.60
  6.44
  6.29
  6.16
  6.05
  5.94
  5.85
  5.76
Revenue, $m
  3,413
  4,137
  4,946
  5,843
  6,825
  7,892
  9,041
  10,272
  11,581
  12,968
  14,430
  15,967
  17,577
  19,260
  21,016
  22,846
  24,750
  26,730
  28,789
  30,929
  33,152
  35,462
  37,864
  40,361
  42,959
  45,662
  48,476
  51,407
  54,462
  57,647
  60,969
Variable operating expenses, $m
 
  3,500
  4,185
  4,943
  5,774
  6,676
  7,649
  8,690
  9,798
  10,971
  12,208
  13,508
  14,870
  16,294
  17,779
  19,327
  20,938
  22,614
  24,356
  26,166
  28,046
  30,001
  32,033
  34,146
  36,343
  38,630
  41,011
  43,491
  46,075
  48,769
  51,580
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
  2,911
  3,500
  4,185
  4,943
  5,774
  6,676
  7,649
  8,690
  9,798
  10,971
  12,208
  13,508
  14,870
  16,294
  17,779
  19,327
  20,938
  22,614
  24,356
  26,166
  28,046
  30,001
  32,033
  34,146
  36,343
  38,630
  41,011
  43,491
  46,075
  48,769
  51,580
Operating income, $m
  502
  637
  762
  900
  1,051
  1,215
  1,392
  1,582
  1,784
  1,997
  2,222
  2,459
  2,707
  2,966
  3,236
  3,518
  3,811
  4,116
  4,434
  4,763
  5,105
  5,461
  5,831
  6,216
  6,616
  7,032
  7,465
  7,917
  8,387
  8,878
  9,389
EBITDA, $m
  899
  1,075
  1,285
  1,518
  1,773
  2,050
  2,349
  2,669
  3,009
  3,369
  3,749
  4,148
  4,566
  5,004
  5,460
  5,935
  6,430
  6,945
  7,479
  8,035
  8,613
  9,213
  9,837
  10,486
  11,161
  11,863
  12,594
  13,356
  14,149
  14,977
  15,840
Interest expense (income), $m
  101
  106
  171
  245
  327
  416
  514
  618
  730
  850
  976
  1,109
  1,249
  1,396
  1,549
  1,709
  1,876
  2,050
  2,230
  2,418
  2,613
  2,815
  3,026
  3,245
  3,472
  3,709
  3,955
  4,212
  4,479
  4,757
  5,047
Earnings before tax, $m
  358
  531
  590
  655
  724
  799
  879
  964
  1,053
  1,147
  1,246
  1,350
  1,457
  1,570
  1,687
  1,809
  1,935
  2,067
  2,203
  2,345
  2,493
  2,646
  2,805
  2,971
  3,144
  3,323
  3,510
  3,705
  3,909
  4,121
  4,342
Tax expense, $m
  102
  143
  159
  177
  196
  216
  237
  260
  284
  310
  336
  364
  394
  424
  456
  488
  523
  558
  595
  633
  673
  714
  757
  802
  849
  897
  948
  1,000
  1,055
  1,113
  1,172
Net income, $m
  254
  388
  431
  478
  529
  583
  642
  703
  769
  838
  910
  985
  1,064
  1,146
  1,232
  1,320
  1,413
  1,509
  1,608
  1,712
  1,820
  1,932
  2,048
  2,169
  2,295
  2,426
  2,562
  2,705
  2,853
  3,008
  3,170

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  365
  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
  3,066
  3,273
  3,913
  4,623
  5,400
  6,243
  7,153
  8,126
  9,162
  10,259
  11,416
  12,632
  13,906
  15,237
  16,627
  18,074
  19,581
  21,147
  22,776
  24,469
  26,228
  28,056
  29,956
  31,931
  33,986
  36,125
  38,351
  40,670
  43,087
  45,607
  48,235
Adjusted assets (=assets-cash), $m
  2,701
  3,273
  3,913
  4,623
  5,400
  6,243
  7,153
  8,126
  9,162
  10,259
  11,416
  12,632
  13,906
  15,237
  16,627
  18,074
  19,581
  21,147
  22,776
  24,469
  26,228
  28,056
  29,956
  31,931
  33,986
  36,125
  38,351
  40,670
  43,087
  45,607
  48,235
Revenue / Adjusted assets
  1.264
  1.264
  1.264
  1.264
  1.264
  1.264
  1.264
  1.264
  1.264
  1.264
  1.264
  1.264
  1.264
  1.264
  1.264
  1.264
  1.264
  1.264
  1.264
  1.264
  1.264
  1.264
  1.264
  1.264
  1.264
  1.264
  1.264
  1.264
  1.264
  1.264
  1.264
Average production assets, $m
  1,805
  2,188
  2,617
  3,091
  3,610
  4,175
  4,783
  5,434
  6,126
  6,860
  7,634
  8,446
  9,298
  10,188
  11,117
  12,085
  13,093
  14,140
  15,229
  16,361
  17,537
  18,760
  20,030
  21,351
  22,725
  24,155
  25,644
  27,194
  28,810
  30,495
  32,253
Working capital, $m
  -61
  -277
  -331
  -391
  -457
  -529
  -606
  -688
  -776
  -869
  -967
  -1,070
  -1,178
  -1,290
  -1,408
  -1,531
  -1,658
  -1,791
  -1,929
  -2,072
  -2,221
  -2,376
  -2,537
  -2,704
  -2,878
  -3,059
  -3,248
  -3,444
  -3,649
  -3,862
  -4,085
Total debt, $m
  753
  897
  1,284
  1,711
  2,180
  2,689
  3,237
  3,824
  4,449
  5,110
  5,808
  6,541
  7,309
  8,112
  8,950
  9,823
  10,731
  11,676
  12,658
  13,679
  14,739
  15,842
  16,987
  18,179
  19,418
  20,707
  22,050
  23,448
  24,905
  26,425
  28,010
Total liabilities, $m
  1,829
  1,973
  2,360
  2,787
  3,256
  3,765
  4,313
  4,900
  5,525
  6,186
  6,884
  7,617
  8,385
  9,188
  10,026
  10,899
  11,807
  12,752
  13,734
  14,755
  15,815
  16,918
  18,063
  19,255
  20,494
  21,783
  23,126
  24,524
  25,981
  27,501
  29,086
Total equity, $m
  1,237
  1,299
  1,554
  1,835
  2,144
  2,479
  2,840
  3,226
  3,637
  4,073
  4,532
  5,015
  5,521
  6,049
  6,601
  7,175
  7,774
  8,396
  9,042
  9,714
  10,412
  11,138
  11,892
  12,677
  13,493
  14,342
  15,225
  16,146
  17,106
  18,106
  19,149
Total liabilities and equity, $m
  3,066
  3,272
  3,914
  4,622
  5,400
  6,244
  7,153
  8,126
  9,162
  10,259
  11,416
  12,632
  13,906
  15,237
  16,627
  18,074
  19,581
  21,148
  22,776
  24,469
  26,227
  28,056
  29,955
  31,932
  33,987
  36,125
  38,351
  40,670
  43,087
  45,607
  48,235
Debt-to-equity ratio
  0.609
  0.690
  0.830
  0.930
  1.020
  1.080
  1.140
  1.190
  1.220
  1.250
  1.280
  1.300
  1.320
  1.340
  1.360
  1.370
  1.380
  1.390
  1.400
  1.410
  1.420
  1.420
  1.430
  1.430
  1.440
  1.440
  1.450
  1.450
  1.460
  1.460
  1.460
Adjusted equity ratio
  0.323
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397
  0.397

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  254
  388
  431
  478
  529
  583
  642
  703
  769
  838
  910
  985
  1,064
  1,146
  1,232
  1,320
  1,413
  1,509
  1,608
  1,712
  1,820
  1,932
  2,048
  2,169
  2,295
  2,426
  2,562
  2,705
  2,853
  3,008
  3,170
Depreciation, amort., depletion, $m
  397
  438
  523
  618
  722
  835
  957
  1,087
  1,225
  1,372
  1,527
  1,689
  1,860
  2,038
  2,223
  2,417
  2,619
  2,828
  3,046
  3,272
  3,507
  3,752
  4,006
  4,270
  4,545
  4,831
  5,129
  5,439
  5,762
  6,099
  6,451
Funds from operations, $m
  539
  825
  954
  1,096
  1,251
  1,418
  1,598
  1,790
  1,994
  2,210
  2,436
  2,674
  2,924
  3,184
  3,455
  3,737
  4,031
  4,337
  4,654
  4,984
  5,327
  5,683
  6,054
  6,439
  6,840
  7,257
  7,691
  8,144
  8,615
  9,107
  9,620
Change in working capital, $m
  -188
  -48
  -54
  -60
  -66
  -71
  -77
  -82
  -88
  -93
  -98
  -103
  -108
  -113
  -118
  -123
  -128
  -133
  -138
  -143
  -149
  -155
  -161
  -167
  -174
  -181
  -189
  -196
  -205
  -213
  -223
Cash from operations, $m
  727
  1,038
  1,009
  1,156
  1,317
  1,490
  1,675
  1,873
  2,082
  2,302
  2,534
  2,777
  3,031
  3,297
  3,573
  3,860
  4,159
  4,470
  4,792
  5,128
  5,476
  5,838
  6,215
  6,606
  7,014
  7,438
  7,880
  8,340
  8,820
  9,320
  9,843
Maintenance CAPEX, $m
  0
  -361
  -438
  -523
  -618
  -722
  -835
  -957
  -1,087
  -1,225
  -1,372
  -1,527
  -1,689
  -1,860
  -2,038
  -2,223
  -2,417
  -2,619
  -2,828
  -3,046
  -3,272
  -3,507
  -3,752
  -4,006
  -4,270
  -4,545
  -4,831
  -5,129
  -5,439
  -5,762
  -6,099
New CAPEX, $m
  -726
  -384
  -428
  -474
  -520
  -564
  -608
  -651
  -693
  -734
  -774
  -813
  -852
  -890
  -929
  -968
  -1,007
  -1,048
  -1,089
  -1,132
  -1,176
  -1,222
  -1,271
  -1,321
  -1,374
  -1,430
  -1,489
  -1,551
  -1,616
  -1,685
  -1,757
Cash from investing activities, $m
  -726
  -745
  -866
  -997
  -1,138
  -1,286
  -1,443
  -1,608
  -1,780
  -1,959
  -2,146
  -2,340
  -2,541
  -2,750
  -2,967
  -3,191
  -3,424
  -3,667
  -3,917
  -4,178
  -4,448
  -4,729
  -5,023
  -5,327
  -5,644
  -5,975
  -6,320
  -6,680
  -7,055
  -7,447
  -7,856
Free cash flow, $m
  1
  294
  142
  159
  179
  203
  232
  265
  302
  344
  389
  438
  490
  547
  606
  669
  735
  803
  875
  950
  1,028
  1,109
  1,192
  1,279
  1,370
  1,463
  1,560
  1,661
  1,765
  1,874
  1,986
Issuance/(repayment) of debt, $m
  410
  343
  386
  428
  469
  509
  548
  587
  625
  662
  698
  733
  768
  803
  838
  873
  908
  945
  982
  1,021
  1,061
  1,102
  1,146
  1,191
  1,239
  1,290
  1,343
  1,398
  1,457
  1,519
  1,585
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  
  309
  343
  386
  428
  469
  509
  548
  587
  625
  662
  698
  733
  768
  803
  838
  873
  908
  945
  982
  1,021
  1,061
  1,102
  1,146
  1,191
  1,239
  1,290
  1,343
  1,398
  1,457
  1,519
  1,585
Total cash flow (excl. dividends), $m
  325
  637
  529
  586
  647
  712
  780
  852
  927
  1,005
  1,086
  1,171
  1,259
  1,349
  1,444
  1,542
  1,643
  1,748
  1,857
  1,971
  2,088
  2,211
  2,338
  2,471
  2,609
  2,753
  2,903
  3,059
  3,222
  3,393
  3,571
Retained Cash Flow (-), $m
  -137
  -228
  -254
  -282
  -308
  -335
  -361
  -386
  -411
  -436
  -459
  -483
  -506
  -529
  -552
  -575
  -598
  -622
  -647
  -672
  -698
  -726
  -754
  -784
  -816
  -849
  -884
  -921
  -959
  -1,000
  -1,043
Prev. year cash balance distribution, $m
 
  166
  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
 
  575
  274
  305
  339
  377
  419
  466
  516
  570
  627
  688
  753
  821
  892
  967
  1,045
  1,126
  1,211
  1,299
  1,390
  1,485
  1,584
  1,686
  1,793
  1,904
  2,019
  2,138
  2,263
  2,393
  2,528
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  551
  251
  265
  279
  292
  304
  315
  322
  327
  329
  327
  321
  312
  300
  284
  266
  245
  223
  200
  177
  154
  131
  111
  91
  74
  59
  46
  35
  26
  19
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

Telecom Argentina S.A. provides fixed-line telecommunications and other telephone-related services to residential customers, businesses, and governmental agencies in Argentina and internationally. The company operates in three segments: Fixed Telecommunications Services, Personal Mobile Telecommunications Services, and Núcleo Mobile Telecommunications Services. It offers fixed services, including basic telephone services, such as local, domestic, and international long-distance telephone services, as well as public telephone services; interconnection services, which primarily include the access, termination, and long-distance transport of calls; and data transmission and Internet services comprising traditional broadband, Internet dedicated lines, private networks, national and international video streaming, radio and television signals transportation, and videoconferencing services. The company also provides information and communication technology, datacenter, telecommunications consulting, and value-added solutions; and other telephone services, such as call waiting, call forwarding, conference calls, caller ID, voice mail, itemized billing, and maintenance services. In addition, it offers mobile services, including voice communications; global system for mobile communications; third-generation mobile system; and fourth-generation mobile system mobile communications. Further, the company sells mobile communication devices, such as handsets, tablets, modems mifi, and wingles. As of December 31, 2015, it had approximately 4 million fixed lines in service; 1.8 million Internet accesses; 19.7 million mobile subscribers in Argentina; and 2.5 million subscribers in Paraguay. The company was formerly known as Telecom Argentina STET-France Telecom S.A. and changed its name to Telecom Argentina S.A. in February 2004. The company was founded in 1990 and is based in Buenos Aires, Argentina. Telecom Argentina S.A. operates as a subsidiary of Nortel Inversora S.A.

FINANCIAL RATIOS  of  Telecom Argentina ADR (TEO)

Valuation Ratios
P/E Ratio 87.5
Price to Sales 6.5
Price to Book 18
Price to Tangible Book
Price to Cash Flow 30.6
Price to Free Cash Flow 22232.5
Growth Rates
Sales Growth Rate 31.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 30.1%
Cap. Spend. - 3 Yr. Gr. Rate 22%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 44.8%
Total Debt to Equity 60.9%
Interest Coverage 5
Management Effectiveness
Return On Assets 11.8%
Ret/ On Assets - 3 Yr. Avg. 12.7%
Return On Total Capital 15%
Ret/ On T. Cap. - 3 Yr. Avg. 20.3%
Return On Equity 21.7%
Return On Equity - 3 Yr. Avg. 23.8%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 80.8%
Gross Margin - 3 Yr. Avg. 79.8%
EBITDA Margin 25.1%
EBITDA Margin - 3 Yr. Avg. 25.6%
Operating Margin 14.7%
Oper. Margin - 3 Yr. Avg. 15.5%
Pre-Tax Margin 10.5%
Pre-Tax Margin - 3 Yr. Avg. 13.4%
Net Profit Margin 7.4%
Net Profit Margin - 3 Yr. Avg. 8.9%
Effective Tax Rate 28.5%
Eff/ Tax Rate - 3 Yr. Avg. 32%
Payout Ratio 50.4%

TEO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TEO stock intrinsic value calculation we used $3413 million for the last fiscal year's total revenue generated by Telecom Argentina ADR. The default revenue input number comes from 2016 income statement of Telecom Argentina 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 TEO stock valuation model: a) initial revenue growth rate of 21.2% 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 4.3%, whose default value for TEO is calculated based on our internal credit rating of Telecom Argentina 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 Telecom Argentina 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 TEO stock the variable cost ratio is equal to 84.6%.

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 TEO 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 19.1% for Telecom Argentina ADR.

Corporate tax rate of 27% is the nominal tax rate for Telecom Argentina 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 TEO 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 TEO are equal to 52.9%.

Life of production assets of 4.5 years is the average useful life of capital assets used in Telecom Argentina 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 TEO is equal to -6.7%. 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 - $1237 million for Telecom Argentina 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 95.088 million for Telecom Argentina 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 Telecom Argentina ADR at the current share price and the inputted number of shares is $2.2 billion.


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Stock chart of TEO Financial statements of TEO
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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