Intrinsic value of Telecom Italia ADR - TI

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$6.89

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$6.89

 
Intrinsic value

$22.45

 
Up/down potential

+226%

 
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 TI 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 13.7

 

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, %
  -3.52
  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
  20,079
  20,481
  20,952
  21,490
  22,095
  22,764
  23,499
  24,300
  25,166
  26,099
  27,101
  28,173
  29,316
  30,533
  31,827
  33,200
  34,655
  36,195
  37,824
  39,545
  41,362
  43,279
  45,301
  47,432
  49,677
  52,042
  54,532
  57,153
  59,911
  62,813
  65,865
Variable operating expenses, $m
 
  17,346
  17,673
  18,047
  18,467
  18,932
  19,442
  19,998
  20,599
  21,247
  21,943
  19,562
  20,356
  21,201
  22,099
  23,052
  24,063
  25,132
  26,263
  27,458
  28,719
  30,051
  31,455
  32,934
  34,494
  36,136
  37,865
  39,684
  41,599
  43,614
  45,733
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
  16,151
  17,346
  17,673
  18,047
  18,467
  18,932
  19,442
  19,998
  20,599
  21,247
  21,943
  19,562
  20,356
  21,201
  22,099
  23,052
  24,063
  25,132
  26,263
  27,458
  28,719
  30,051
  31,455
  32,934
  34,494
  36,136
  37,865
  39,684
  41,599
  43,614
  45,733
Operating income, $m
  3,928
  3,135
  3,279
  3,443
  3,628
  3,833
  4,057
  4,302
  4,567
  4,852
  5,158
  8,611
  8,960
  9,333
  9,728
  10,148
  10,592
  11,063
  11,561
  12,087
  12,642
  13,228
  13,846
  14,498
  15,184
  15,907
  16,668
  17,469
  18,312
  19,199
  20,132
EBITDA, $m
  8,457
  7,166
  7,331
  7,519
  7,731
  7,965
  8,222
  8,502
  8,805
  9,132
  9,482
  9,857
  10,257
  10,683
  11,136
  11,616
  12,125
  12,664
  13,234
  13,836
  14,472
  15,143
  15,850
  16,596
  17,381
  18,209
  19,080
  19,997
  20,962
  21,977
  23,045
Interest expense (income), $m
  0
  1,125
  1,157
  1,197
  1,241
  1,291
  1,347
  1,408
  1,475
  1,547
  1,624
  1,707
  1,796
  1,891
  1,992
  2,100
  2,214
  2,335
  2,462
  2,598
  2,741
  2,892
  3,051
  3,219
  3,396
  3,582
  3,779
  3,985
  4,203
  4,432
  4,673
Earnings before tax, $m
  2,954
  2,009
  2,121
  2,247
  2,387
  2,541
  2,710
  2,894
  3,092
  3,305
  3,534
  6,904
  7,164
  7,441
  7,736
  8,048
  8,379
  8,728
  9,098
  9,489
  9,902
  10,337
  10,795
  11,279
  11,788
  12,325
  12,889
  13,484
  14,109
  14,767
  15,458
Tax expense, $m
  929
  542
  573
  607
  644
  686
  732
  781
  835
  892
  954
  1,864
  1,934
  2,009
  2,089
  2,173
  2,262
  2,357
  2,457
  2,562
  2,673
  2,791
  2,915
  3,045
  3,183
  3,328
  3,480
  3,641
  3,809
  3,987
  4,174
Net income, $m
  1,908
  1,467
  1,548
  1,640
  1,742
  1,855
  1,978
  2,112
  2,257
  2,413
  2,580
  5,040
  5,230
  5,432
  5,647
  5,875
  6,116
  6,372
  6,642
  6,927
  7,228
  7,546
  7,881
  8,234
  8,605
  8,997
  9,409
  9,843
  10,299
  10,780
  11,285

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  6,197
  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
  74,350
  69,426
  71,022
  72,848
  74,897
  77,168
  79,659
  82,372
  85,309
  88,472
  91,868
  95,500
  99,376
  103,503
  107,889
  112,543
  117,475
  122,695
  128,216
  134,050
  140,209
  146,708
  153,562
  160,786
  168,398
  176,415
  184,856
  193,740
  203,089
  212,925
  223,270
Adjusted assets (=assets-cash), $m
  68,153
  69,426
  71,022
  72,848
  74,897
  77,168
  79,659
  82,372
  85,309
  88,472
  91,868
  95,500
  99,376
  103,503
  107,889
  112,543
  117,475
  122,695
  128,216
  134,050
  140,209
  146,708
  153,562
  160,786
  168,398
  176,415
  184,856
  193,740
  203,089
  212,925
  223,270
Revenue / Adjusted assets
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
Average production assets, $m
  7,556
  7,701
  7,878
  8,080
  8,308
  8,559
  8,836
  9,137
  9,462
  9,813
  10,190
  10,593
  11,023
  11,481
  11,967
  12,483
  13,030
  13,609
  14,222
  14,869
  15,552
  16,273
  17,033
  17,834
  18,679
  19,568
  20,504
  21,490
  22,527
  23,618
  24,765
Working capital, $m
  -715
  -2,683
  -2,745
  -2,815
  -2,894
  -2,982
  -3,078
  -3,183
  -3,297
  -3,419
  -3,550
  -3,691
  -3,840
  -4,000
  -4,169
  -4,349
  -4,540
  -4,742
  -4,955
  -5,180
  -5,418
  -5,670
  -5,934
  -6,214
  -6,508
  -6,818
  -7,144
  -7,487
  -7,848
  -8,228
  -8,628
Total debt, $m
  36,438
  33,068
  34,186
  35,463
  36,898
  38,487
  40,231
  42,130
  44,186
  46,401
  48,777
  51,320
  54,033
  56,922
  59,992
  63,250
  66,702
  70,357
  74,221
  78,305
  82,616
  87,166
  91,963
  97,020
  102,349
  107,961
  113,869
  120,088
  126,633
  133,517
  140,759
Total liabilities, $m
  51,968
  48,598
  49,716
  50,993
  52,428
  54,017
  55,761
  57,660
  59,716
  61,931
  64,307
  66,850
  69,563
  72,452
  75,522
  78,780
  82,232
  85,887
  89,751
  93,835
  98,146
  102,696
  107,493
  112,550
  117,879
  123,491
  129,399
  135,618
  142,163
  149,047
  156,289
Total equity, $m
  22,382
  20,828
  21,307
  21,854
  22,469
  23,150
  23,898
  24,712
  25,593
  26,542
  27,560
  28,650
  29,813
  31,051
  32,367
  33,763
  35,242
  36,809
  38,465
  40,215
  42,063
  44,012
  46,069
  48,236
  50,519
  52,925
  55,457
  58,122
  60,927
  63,877
  66,981
Total liabilities and equity, $m
  74,350
  69,426
  71,023
  72,847
  74,897
  77,167
  79,659
  82,372
  85,309
  88,473
  91,867
  95,500
  99,376
  103,503
  107,889
  112,543
  117,474
  122,696
  128,216
  134,050
  140,209
  146,708
  153,562
  160,786
  168,398
  176,416
  184,856
  193,740
  203,090
  212,924
  223,270
Debt-to-equity ratio
  1.628
  1.590
  1.600
  1.620
  1.640
  1.660
  1.680
  1.700
  1.730
  1.750
  1.770
  1.790
  1.810
  1.830
  1.850
  1.870
  1.890
  1.910
  1.930
  1.950
  1.960
  1.980
  2.000
  2.010
  2.030
  2.040
  2.050
  2.070
  2.080
  2.090
  2.100
Adjusted equity ratio
  0.237
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,908
  1,467
  1,548
  1,640
  1,742
  1,855
  1,978
  2,112
  2,257
  2,413
  2,580
  5,040
  5,230
  5,432
  5,647
  5,875
  6,116
  6,372
  6,642
  6,927
  7,228
  7,546
  7,881
  8,234
  8,605
  8,997
  9,409
  9,843
  10,299
  10,780
  11,285
Depreciation, amort., depletion, $m
  4,529
  4,031
  4,052
  4,076
  4,103
  4,132
  4,165
  4,200
  4,239
  4,280
  4,324
  1,246
  1,297
  1,351
  1,408
  1,469
  1,533
  1,601
  1,673
  1,749
  1,830
  1,914
  2,004
  2,098
  2,197
  2,302
  2,412
  2,528
  2,650
  2,779
  2,914
Funds from operations, $m
  5,526
  5,498
  5,601
  5,716
  5,845
  5,987
  6,143
  6,313
  6,496
  6,693
  6,904
  6,286
  6,527
  6,783
  7,055
  7,344
  7,649
  7,973
  8,315
  8,676
  9,058
  9,460
  9,885
  10,332
  10,803
  11,299
  11,821
  12,371
  12,950
  13,558
  14,198
Change in working capital, $m
  -449
  -53
  -62
  -71
  -79
  -88
  -96
  -105
  -113
  -122
  -131
  -140
  -150
  -159
  -169
  -180
  -191
  -202
  -213
  -225
  -238
  -251
  -265
  -279
  -294
  -310
  -326
  -343
  -361
  -380
  -400
Cash from operations, $m
  5,975
  5,331
  5,662
  5,787
  5,924
  6,075
  6,240
  6,418
  6,609
  6,815
  7,035
  6,426
  6,676
  6,942
  7,224
  7,523
  7,840
  8,175
  8,528
  8,902
  9,296
  9,711
  10,149
  10,611
  11,097
  11,609
  12,148
  12,715
  13,311
  13,938
  14,598
Maintenance CAPEX, $m
  0
  -889
  -906
  -927
  -951
  -977
  -1,007
  -1,040
  -1,075
  -1,113
  -1,155
  -1,199
  -1,246
  -1,297
  -1,351
  -1,408
  -1,469
  -1,533
  -1,601
  -1,673
  -1,749
  -1,830
  -1,914
  -2,004
  -2,098
  -2,197
  -2,302
  -2,412
  -2,528
  -2,650
  -2,779
New CAPEX, $m
  -5,391
  -145
  -177
  -202
  -227
  -252
  -276
  -301
  -326
  -351
  -377
  -403
  -430
  -458
  -486
  -516
  -547
  -579
  -612
  -647
  -683
  -721
  -760
  -801
  -844
  -889
  -936
  -985
  -1,037
  -1,091
  -1,148
Cash from investing activities, $m
  -4,184
  -1,034
  -1,083
  -1,129
  -1,178
  -1,229
  -1,283
  -1,341
  -1,401
  -1,464
  -1,532
  -1,602
  -1,676
  -1,755
  -1,837
  -1,924
  -2,016
  -2,112
  -2,213
  -2,320
  -2,432
  -2,551
  -2,674
  -2,805
  -2,942
  -3,086
  -3,238
  -3,397
  -3,565
  -3,741
  -3,927
Free cash flow, $m
  1,791
  4,297
  4,579
  4,657
  4,746
  4,846
  4,956
  5,077
  5,209
  5,351
  5,504
  4,825
  5,000
  5,188
  5,387
  5,599
  5,824
  6,063
  6,315
  6,582
  6,863
  7,161
  7,475
  7,806
  8,155
  8,522
  8,909
  9,317
  9,746
  10,197
  10,672
Issuance/(repayment) of debt, $m
  -1,098
  911
  1,118
  1,278
  1,434
  1,589
  1,744
  1,899
  2,056
  2,215
  2,377
  2,543
  2,713
  2,889
  3,070
  3,258
  3,452
  3,654
  3,865
  4,083
  4,311
  4,549
  4,798
  5,057
  5,328
  5,612
  5,909
  6,219
  6,544
  6,885
  7,242
Issuance/(repurchase) of shares, $m
  4
  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  
  -1,093
  911
  1,118
  1,278
  1,434
  1,589
  1,744
  1,899
  2,056
  2,215
  2,377
  2,543
  2,713
  2,889
  3,070
  3,258
  3,452
  3,654
  3,865
  4,083
  4,311
  4,549
  4,798
  5,057
  5,328
  5,612
  5,909
  6,219
  6,544
  6,885
  7,242
Total cash flow (excl. dividends), $m
  1,017
  5,208
  5,697
  5,935
  6,181
  6,435
  6,700
  6,976
  7,264
  7,566
  7,881
  7,367
  7,713
  8,077
  8,457
  8,857
  9,277
  9,717
  10,179
  10,665
  11,175
  11,710
  12,272
  12,863
  13,483
  14,134
  14,818
  15,536
  16,290
  17,082
  17,914
Retained Cash Flow (-), $m
  -3,855
  -362
  -479
  -548
  -615
  -681
  -747
  -814
  -881
  -949
  -1,019
  -1,090
  -1,163
  -1,238
  -1,316
  -1,396
  -1,480
  -1,566
  -1,656
  -1,750
  -1,848
  -1,950
  -2,056
  -2,167
  -2,284
  -2,405
  -2,532
  -2,665
  -2,805
  -2,951
  -3,104
Prev. year cash balance distribution, $m
 
  1,916
  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
 
  6,762
  5,218
  5,387
  5,566
  5,754
  5,953
  6,162
  6,383
  6,616
  6,862
  6,278
  6,551
  6,838
  7,142
  7,461
  7,797
  8,151
  8,523
  8,915
  9,327
  9,760
  10,216
  10,695
  11,199
  11,729
  12,286
  12,871
  13,485
  14,131
  14,810
Discount rate, %
 
  8.00
  8.40
  8.82
  9.26
  9.72
  10.21
  10.72
  11.26
  11.82
  12.41
  13.03
  13.68
  14.37
  15.09
  15.84
  16.63
  17.46
  18.34
  19.25
  20.22
  21.23
  22.29
  23.40
  24.57
  25.80
  27.09
  28.45
  29.87
  31.36
  32.93
PV of cash for distribution, $m
 
  6,261
  4,441
  4,181
  3,905
  3,618
  3,322
  3,021
  2,719
  2,421
  2,130
  1,632
  1,406
  1,194
  999
  822
  665
  528
  412
  314
  235
  171
  122
  85
  57
  38
  24
  15
  9
  5
  3
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 Italia S.p.A., together with its subsidiaries, provides fixed and mobile telecommunications services. It offers public telephony services; voice, data, and Internet services and products; and information and communications technology solutions managed and developed for individuals and families, small and medium-size enterprises, small offices/home offices, public sector, and large accounts, as well as enterprises in the fixed and mobile telecommunications markets. The company is also involved in the management and development of portfolio of regulated and unregulated wholesale services for fixed and mobile telecommunications operators; provision of infrastructure for housing radio transmission equipment of mobile telephone networks; and development, engineering, building, and operation of network infrastructures, real estate properties and plant engineering, and delivery processes, as well as assurance for customer services. In addition, it engages in the development of information technology (IT) strategy, guidelines, and plan; customer care, operating credit, loyalty, and retention activities; administrative management of customers; and staff functions and other support activities. Further, the company offers office products and services for IT sector. It operates primarily in Europe, South America, and the Mediterranean Basin. The company was founded in 1908 and is headquartered in Rome, Italy.

FINANCIAL RATIOS  of  Telecom Italia ADR (TI)

Valuation Ratios
P/E Ratio 76.1
Price to Sales 7.2
Price to Book 6.5
Price to Tangible Book
Price to Cash Flow 24.3
Price to Free Cash Flow 248.5
Growth Rates
Sales Growth Rate -3.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -24%
Cap. Spend. - 3 Yr. Gr. Rate 3%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 143.7%
Total Debt to Equity 162.8%
Interest Coverage 0
Management Effectiveness
Return On Assets 2.6%
Ret/ On Assets - 3 Yr. Avg. 3.1%
Return On Total Capital 3.4%
Ret/ On T. Cap. - 3 Yr. Avg. 1.9%
Return On Equity 9.3%
Return On Equity - 3 Yr. Avg. 5.5%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 62.4%
Gross Margin - 3 Yr. Avg. 75.1%
EBITDA Margin 37.3%
EBITDA Margin - 3 Yr. Avg. 46.8%
Operating Margin 19.6%
Oper. Margin - 3 Yr. Avg. 18.5%
Pre-Tax Margin 14.7%
Pre-Tax Margin - 3 Yr. Avg. 9.3%
Net Profit Margin 9.5%
Net Profit Margin - 3 Yr. Avg. 5.1%
Effective Tax Rate 31.4%
Eff/ Tax Rate - 3 Yr. Avg. 53.5%
Payout Ratio 12.6%

TI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TI stock intrinsic value calculation we used $20079 million for the last fiscal year's total revenue generated by Telecom Italia ADR. The default revenue input number comes from 2016 income statement of Telecom Italia 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 TI 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 8%, whose default value for TI is calculated based on our internal credit rating of Telecom Italia 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 Italia 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 TI stock the variable cost ratio is equal to 85%.

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 TI 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 3.5% for Telecom Italia ADR.

Corporate tax rate of 27% is the nominal tax rate for Telecom Italia 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 TI 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 TI are equal to 37.6%.

Life of production assets of 8.5 years is the average useful life of capital assets used in Telecom Italia 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 TI is equal to -13.1%. 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 - $22382 million for Telecom Italia 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 1993.34 million for Telecom Italia 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 Italia ADR at the current share price and the inputted number of shares is $13.7 billion.


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COMPANY NEWS

▶ ETFs with exposure to Telecom Italia SpA : April 20, 2017   [Apr-20-17 02:32PM  Capital Cube]
▶ Where Cypress Stands Now in Body Electronics   [Apr-11-17 05:53PM  Market Realist]
▶ [$$] Vivendi CEO tops list for new Telecom Italia board   [Apr-10-17 12:05PM  Financial Times]
▶ Vivendi Notifies EU it May Take Control of Telecom Italia   [Apr-05-17 02:21PM  TheStreet.com]
▶ Why Texas Instruments Popped 34% in 2016   [Feb-14-17 05:30PM  Motley Fool]
▶ Why Texas Instruments Popped 34% in 2016   [05:30PM  at Motley Fool]
▶ Permian Ups Stake in Telecom Italia Shares (TI)   [Jan-24-17 08:14AM  Investopedia]
▶ Permian Ups Stake in Telecom Italia Shares (TI)   [08:14AM  at Investopedia]
▶ [$$] Telecom Italia challenged over award of contract to Havas   [Jan-05-17 01:25PM  at Financial Times]
▶ Report: Telecom Italia Won't Acquire Oi SA (TI)   [Oct-19-16 12:30PM  at Investopedia]
▶ Telecom Italia Faces New Rival: Iliad (TI)   [Sep-19-16 11:31AM  at Investopedia]
▶ Telecom Italia CEO in Compensation Battle (TI)   [04:50PM  at Investopedia]
▶ How to Repel a Billionaire   [Sep-01-16 09:26AM  at Bloomberg]
▶ Italy's Other Corporate Worry   [07:04AM  at Bloomberg]
▶ [$$] Gossip magazine group buys newspaper rival RCS Mediagroup   [Jul-17-16 09:56AM  at Financial Times]
▶ Billionaires Play Game of Phones   [Jul-08-16 02:37AM  at Bloomberg]
▶ 15 Euro Stocks That Lost Over 10% to 25% After Brexit Shock   [Jun-24-16 04:21PM  at 24/7 Wall St.]
▶ [$$] BollorĂ©'s master plan for Vivendi   [Jun-02-16 12:43PM  at Financial Times]
▶ [$$] Why Savings Alone Won't Save Telecom Italia   [May-16-16 01:19PM  at The Wall Street Journal]
▶ [$$] Telecom Italia Net Profit Rises   [May-13-16 05:51PM  at The Wall Street Journal]
▶ Texas Instruments Was the Way to Play Apple   [Apr-28-16 04:25PM  at TheStreet]
Stock chart of TI Financial statements of TI
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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