Intrinsic value of Telecom Italia ADR - TI

Previous Close

$9.67

  Intrinsic Value

premium content

  Rating & Target

premium content

  Value-price divergence*

premium content

Previous close

$9.67

 
Intrinsic value

$23.97

 
Up/down potential

+148%

 
Rating

str. buy

 
Value-price divergence* premium content

Premium access subscription - $499/yr

please register and log in before paying

*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 19.5

 

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
  8.50
  8.15
  7.83
  7.55
  7.30
  7.07
  6.86
  6.67
  6.51
  6.36
  6.22
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.58
  5.53
  5.47
  5.43
  5.38
  5.34
  5.31
  5.28
  5.25
  5.23
  5.20
  5.18
  5.16
Revenue, $m
  20,079
  21,786
  23,561
  25,407
  27,326
  29,320
  31,392
  33,545
  35,784
  38,112
  40,535
  43,056
  45,682
  48,417
  51,269
  54,243
  57,346
  60,585
  63,968
  67,503
  71,197
  75,060
  79,100
  83,328
  87,753
  92,385
  97,237
  102,318
  107,643
  113,222
  119,070
Variable operating expenses, $m
 
  18,252
  19,485
  20,767
  22,099
  23,483
  24,922
  26,417
  27,972
  29,589
  31,271
  29,896
  31,719
  33,619
  35,599
  37,664
  39,818
  42,067
  44,416
  46,870
  49,436
  52,118
  54,923
  57,859
  60,931
  64,148
  67,516
  71,045
  74,742
  78,616
  82,676
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
  18,252
  19,485
  20,767
  22,099
  23,483
  24,922
  26,417
  27,972
  29,589
  31,271
  29,896
  31,719
  33,619
  35,599
  37,664
  39,818
  42,067
  44,416
  46,870
  49,436
  52,118
  54,923
  57,859
  60,931
  64,148
  67,516
  71,045
  74,742
  78,616
  82,676
Operating income, $m
  3,928
  3,534
  4,076
  4,640
  5,227
  5,836
  6,470
  7,128
  7,812
  8,524
  9,264
  13,160
  13,963
  14,799
  15,670
  16,579
  17,528
  18,518
  19,552
  20,632
  21,761
  22,942
  24,177
  25,469
  26,822
  28,238
  29,720
  31,274
  32,901
  34,606
  36,394
EBITDA, $m
  8,457
  8,773
  9,488
  10,231
  11,003
  11,806
  12,641
  13,508
  14,409
  15,347
  16,322
  17,338
  18,395
  19,496
  20,645
  21,842
  23,092
  24,396
  25,758
  27,182
  28,669
  30,225
  31,852
  33,554
  35,336
  37,201
  39,155
  41,201
  43,345
  45,592
  47,946
Interest expense (income), $m
  2,434
  2,081
  2,357
  2,648
  2,951
  3,265
  3,592
  3,932
  4,285
  4,652
  5,034
  5,431
  5,845
  6,275
  6,724
  7,191
  7,679
  8,188
  8,719
  9,273
  9,853
  10,459
  11,092
  11,755
  12,448
  13,173
  13,933
  14,728
  15,561
  16,434
  17,349
Earnings before tax, $m
  2,954
  1,452
  1,719
  1,992
  2,276
  2,571
  2,877
  3,196
  3,527
  3,871
  4,230
  7,729
  8,118
  8,524
  8,947
  9,388
  9,849
  10,330
  10,833
  11,359
  11,908
  12,483
  13,085
  13,715
  14,374
  15,064
  15,788
  16,545
  17,340
  18,172
  19,044
Tax expense, $m
  929
  392
  464
  538
  615
  694
  777
  863
  952
  1,045
  1,142
  2,087
  2,192
  2,301
  2,416
  2,535
  2,659
  2,789
  2,925
  3,067
  3,215
  3,370
  3,533
  3,703
  3,881
  4,067
  4,263
  4,467
  4,682
  4,906
  5,142
Net income, $m
  1,908
  1,060
  1,255
  1,454
  1,661
  1,877
  2,100
  2,333
  2,575
  2,826
  3,088
  5,642
  5,926
  6,222
  6,531
  6,853
  7,190
  7,541
  7,908
  8,292
  8,693
  9,113
  9,552
  10,012
  10,493
  10,997
  11,525
  12,078
  12,658
  13,265
  13,902

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
  73,850
  79,869
  86,126
  92,630
  99,389
  106,412
  113,712
  121,301
  129,194
  137,406
  145,953
  154,853
  164,127
  173,793
  183,875
  194,393
  205,374
  216,841
  228,822
  241,345
  254,440
  268,136
  282,467
  297,467
  313,170
  329,616
  346,842
  364,890
  383,803
  403,626
Adjusted assets (=assets-cash), $m
  68,153
  73,850
  79,869
  86,126
  92,630
  99,389
  106,412
  113,712
  121,301
  129,194
  137,406
  145,953
  154,853
  164,127
  173,793
  183,875
  194,393
  205,374
  216,841
  228,822
  241,345
  254,440
  268,136
  282,467
  297,467
  313,170
  329,616
  346,842
  364,890
  383,803
  403,626
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
  23,567
  25,576
  27,661
  29,828
  32,081
  34,421
  36,854
  39,382
  42,010
  44,744
  47,588
  50,548
  53,630
  56,842
  60,190
  63,681
  67,324
  71,127
  75,099
  79,248
  83,585
  88,120
  92,864
  97,827
  103,022
  108,460
  114,156
  120,122
  126,372
  132,922
  139,788
Working capital, $m
  -715
  -2,941
  -3,181
  -3,430
  -3,689
  -3,958
  -4,238
  -4,529
  -4,831
  -5,145
  -5,472
  -5,813
  -6,167
  -6,536
  -6,921
  -7,323
  -7,742
  -8,179
  -8,636
  -9,113
  -9,612
  -10,133
  -10,679
  -11,249
  -11,847
  -12,472
  -13,127
  -13,813
  -14,532
  -15,285
  -16,074
Total debt, $m
  34,360
  34,161
  38,380
  42,767
  47,326
  52,064
  56,987
  62,104
  67,424
  72,957
  78,713
  84,705
  90,944
  97,445
  104,221
  111,288
  118,662
  126,359
  134,398
  142,797
  151,575
  160,754
  170,355
  180,401
  190,916
  201,924
  213,453
  225,528
  238,180
  251,438
  265,334
Total liabilities, $m
  51,968
  51,769
  55,988
  60,375
  64,934
  69,672
  74,595
  79,712
  85,032
  90,565
  96,321
  102,313
  108,552
  115,053
  121,829
  128,896
  136,270
  143,967
  152,006
  160,405
  169,183
  178,362
  187,963
  198,009
  208,524
  219,532
  231,061
  243,136
  255,788
  269,046
  282,942
Total equity, $m
  22,382
  22,081
  23,881
  25,752
  27,696
  29,717
  31,817
  34,000
  36,269
  38,629
  41,084
  43,640
  46,301
  49,074
  51,964
  54,979
  58,124
  61,407
  64,836
  68,418
  72,162
  76,077
  80,173
  84,458
  88,943
  93,638
  98,555
  103,706
  109,102
  114,757
  120,684
Total liabilities and equity, $m
  74,350
  73,850
  79,869
  86,127
  92,630
  99,389
  106,412
  113,712
  121,301
  129,194
  137,405
  145,953
  154,853
  164,127
  173,793
  183,875
  194,394
  205,374
  216,842
  228,823
  241,345
  254,439
  268,136
  282,467
  297,467
  313,170
  329,616
  346,842
  364,890
  383,803
  403,626
Debt-to-equity ratio
  1.535
  1.550
  1.610
  1.660
  1.710
  1.750
  1.790
  1.830
  1.860
  1.890
  1.920
  1.940
  1.960
  1.990
  2.010
  2.020
  2.040
  2.060
  2.070
  2.090
  2.100
  2.110
  2.120
  2.140
  2.150
  2.160
  2.170
  2.170
  2.180
  2.190
  2.200
Adjusted equity ratio
  0.237
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299
  0.299

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,908
  1,060
  1,255
  1,454
  1,661
  1,877
  2,100
  2,333
  2,575
  2,826
  3,088
  5,642
  5,926
  6,222
  6,531
  6,853
  7,190
  7,541
  7,908
  8,292
  8,693
  9,113
  9,552
  10,012
  10,493
  10,997
  11,525
  12,078
  12,658
  13,265
  13,902
Depreciation, amort., depletion, $m
  4,529
  5,239
  5,411
  5,590
  5,777
  5,970
  6,171
  6,380
  6,597
  6,823
  7,058
  4,178
  4,432
  4,698
  4,974
  5,263
  5,564
  5,878
  6,206
  6,549
  6,908
  7,283
  7,675
  8,085
  8,514
  8,964
  9,434
  9,927
  10,444
  10,985
  11,553
Funds from operations, $m
  5,526
  6,299
  6,666
  7,045
  7,438
  7,847
  8,271
  8,713
  9,172
  9,649
  10,146
  9,820
  10,358
  10,920
  11,505
  12,116
  12,754
  13,419
  14,115
  14,841
  15,601
  16,395
  17,227
  18,097
  19,007
  19,961
  20,959
  22,006
  23,102
  24,251
  25,455
Change in working capital, $m
  -449
  -230
  -240
  -249
  -259
  -269
  -280
  -291
  -302
  -314
  -327
  -340
  -354
  -369
  -385
  -401
  -419
  -437
  -457
  -477
  -499
  -521
  -545
  -571
  -597
  -625
  -655
  -686
  -719
  -753
  -789
Cash from operations, $m
  5,975
  7,566
  6,906
  7,294
  7,697
  8,116
  8,551
  9,004
  9,474
  9,964
  10,473
  10,160
  10,713
  11,289
  11,890
  12,518
  13,173
  13,857
  14,571
  15,318
  16,100
  16,917
  17,772
  18,667
  19,605
  20,586
  21,614
  22,692
  23,821
  25,004
  26,245
Maintenance CAPEX, $m
  0
  -1,948
  -2,114
  -2,286
  -2,465
  -2,651
  -2,845
  -3,046
  -3,255
  -3,472
  -3,698
  -3,933
  -4,178
  -4,432
  -4,698
  -4,974
  -5,263
  -5,564
  -5,878
  -6,206
  -6,549
  -6,908
  -7,283
  -7,675
  -8,085
  -8,514
  -8,964
  -9,434
  -9,927
  -10,444
  -10,985
New CAPEX, $m
  -5,391
  -2,010
  -2,084
  -2,167
  -2,252
  -2,341
  -2,432
  -2,528
  -2,628
  -2,733
  -2,844
  -2,960
  -3,083
  -3,212
  -3,348
  -3,491
  -3,643
  -3,803
  -3,972
  -4,149
  -4,337
  -4,535
  -4,743
  -4,963
  -5,195
  -5,439
  -5,696
  -5,966
  -6,251
  -6,550
  -6,865
Cash from investing activities, $m
  -4,184
  -3,958
  -4,198
  -4,453
  -4,717
  -4,992
  -5,277
  -5,574
  -5,883
  -6,205
  -6,542
  -6,893
  -7,261
  -7,644
  -8,046
  -8,465
  -8,906
  -9,367
  -9,850
  -10,355
  -10,886
  -11,443
  -12,026
  -12,638
  -13,280
  -13,953
  -14,660
  -15,400
  -16,178
  -16,994
  -17,850
Free cash flow, $m
  1,791
  3,608
  2,708
  2,841
  2,979
  3,124
  3,274
  3,430
  3,591
  3,758
  3,931
  3,267
  3,453
  3,645
  3,845
  4,052
  4,267
  4,490
  4,722
  4,963
  5,213
  5,474
  5,746
  6,029
  6,325
  6,633
  6,955
  7,291
  7,643
  8,010
  8,394
Issuance/(repayment) of debt, $m
  -1,098
  3,997
  4,219
  4,387
  4,559
  4,738
  4,923
  5,117
  5,320
  5,533
  5,756
  5,992
  6,239
  6,501
  6,776
  7,067
  7,374
  7,697
  8,039
  8,399
  8,779
  9,179
  9,601
  10,046
  10,515
  11,008
  11,528
  12,076
  12,652
  13,258
  13,896
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
  3,997
  4,219
  4,387
  4,559
  4,738
  4,923
  5,117
  5,320
  5,533
  5,756
  5,992
  6,239
  6,501
  6,776
  7,067
  7,374
  7,697
  8,039
  8,399
  8,779
  9,179
  9,601
  10,046
  10,515
  11,008
  11,528
  12,076
  12,652
  13,258
  13,896
Total cash flow (excl. dividends), $m
  1,017
  7,605
  6,927
  7,227
  7,539
  7,862
  8,197
  8,547
  8,911
  9,291
  9,688
  9,259
  9,692
  10,146
  10,621
  11,119
  11,640
  12,187
  12,760
  13,361
  13,992
  14,653
  15,347
  16,075
  16,840
  17,642
  18,483
  19,367
  20,294
  21,268
  22,290
Retained Cash Flow (-), $m
  -3,855
  -1,700
  -1,800
  -1,871
  -1,945
  -2,021
  -2,100
  -2,183
  -2,269
  -2,360
  -2,455
  -2,556
  -2,661
  -2,773
  -2,890
  -3,014
  -3,145
  -3,283
  -3,429
  -3,582
  -3,744
  -3,915
  -4,095
  -4,285
  -4,485
  -4,695
  -4,917
  -5,151
  -5,396
  -5,655
  -5,927
Prev. year cash balance distribution, $m
 
  2,001
  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
 
  7,906
  5,127
  5,356
  5,594
  5,841
  6,097
  6,364
  6,642
  6,931
  7,232
  6,703
  7,031
  7,373
  7,731
  8,105
  8,495
  8,904
  9,331
  9,779
  10,247
  10,738
  11,252
  11,790
  12,355
  12,946
  13,566
  14,216
  14,898
  15,613
  16,363
Discount rate, %
 
  7.70
  8.09
  8.49
  8.91
  9.36
  9.83
  10.32
  10.83
  11.38
  11.95
  12.54
  13.17
  13.83
  14.52
  15.25
  16.01
  16.81
  17.65
  18.53
  19.46
  20.43
  21.45
  22.52
  23.65
  24.83
  26.07
  27.38
  28.75
  30.18
  31.69
PV of cash for distribution, $m
 
  7,341
  4,389
  4,195
  3,976
  3,734
  3,474
  3,200
  2,917
  2,628
  2,340
  1,827
  1,593
  1,369
  1,159
  965
  790
  635
  500
  387
  293
  217
  156
  110
  76
  51
  33
  21
  13
  7
  4
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 107.4
Price to Sales 10.2
Price to Book 9.2
Price to Tangible Book
Price to Cash Flow 34.3
Price to Free Cash Flow 350.9
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 134.8%
Total Debt to Equity 153.5%
Interest Coverage 2
Management Effectiveness
Return On Assets 4.8%
Ret/ On Assets - 3 Yr. Avg. 3.9%
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 85.9%
Gross Margin - 3 Yr. Avg. 83%
EBITDA Margin 49.4%
EBITDA Margin - 3 Yr. Avg. 50.9%
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 8.5% 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 7.7%, 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 6.9% 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 117.4%.

Life of production assets of 12.1 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 -13.5%. 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 2019.45 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 $19.5 billion.


Premium access subscription - $499/yr

please register and log in before paying
RELATED COMPANIES Price Int.Val. Rating
TEF Telefonica ADR 11.26 prem.  prem.
VOD Vodafone Group 29.98 prem.  prem.
BT BT Group ADR 20.23 prem.  prem.

COMPANY NEWS

▶ [$$] EU urged to push ahead with telecoms deregulation   [May-25-17 08:49AM  Financial Times]
▶ ETFs with exposure to Telecom Italia SpA : April 20, 2017   [Apr-20-17 02:32PM  Capital Cube]
▶ Where Cypress Stands Now in Body Electronics   [Apr-11-17 05:53PM  Market Realist]
▶ [$$] 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]
Stock chart of TI Financial statements of TI Annual reports 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.

FREE DOWNLOAD
Follow us on:   twitter   twitter   twitter   twitter

VALUATION THEORY       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2017. All rigths reserved.