Intrinsic value of Telefonica Brasil ADR - VIV

Previous Close

$15.38

  Intrinsic Value

$10.06

stock screener

  Rating & Target

sell

-35%

Previous close

$15.38

 
Intrinsic value

$10.06

 
Up/down potential

-35%

 
Rating

sell

We calculate the intrinsic value of VIV 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 24.6

 

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, %
  5.51
  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
  13,440
  13,709
  14,024
  14,385
  14,789
  15,238
  15,729
  16,265
  16,845
  17,470
  18,140
  18,857
  19,623
  20,438
  21,304
  22,223
  23,197
  24,227
  25,318
  26,469
  27,686
  28,969
  30,322
  31,749
  33,252
  34,835
  36,502
  38,256
  40,102
  42,044
  44,087
Variable operating expenses, $m
 
  6,744
  6,882
  7,040
  7,218
  7,415
  7,630
  7,865
  8,120
  8,394
  8,688
  8,274
  8,609
  8,967
  9,347
  9,750
  10,177
  10,630
  11,108
  11,613
  12,147
  12,710
  13,304
  13,930
  14,589
  15,284
  16,015
  16,785
  17,595
  18,447
  19,343
Fixed operating expenses, $m
 
  5,045
  5,171
  5,300
  5,433
  5,569
  5,708
  5,851
  5,997
  6,147
  6,301
  6,458
  6,620
  6,785
  6,955
  7,129
  7,307
  7,489
  7,677
  7,869
  8,065
  8,267
  8,474
  8,685
  8,903
  9,125
  9,353
  9,587
  9,827
  10,072
  10,324
Total operating expenses, $m
  11,426
  11,789
  12,053
  12,340
  12,651
  12,984
  13,338
  13,716
  14,117
  14,541
  14,989
  14,732
  15,229
  15,752
  16,302
  16,879
  17,484
  18,119
  18,785
  19,482
  20,212
  20,977
  21,778
  22,615
  23,492
  24,409
  25,368
  26,372
  27,422
  28,519
  29,667
Operating income, $m
  2,014
  1,920
  1,971
  2,044
  2,138
  2,254
  2,391
  2,549
  2,728
  2,929
  3,152
  4,126
  4,394
  4,686
  5,002
  5,344
  5,712
  6,108
  6,533
  6,988
  7,473
  7,992
  8,545
  9,134
  9,760
  10,426
  11,134
  11,884
  12,681
  13,525
  14,420
EBITDA, $m
  4,434
  4,364
  4,454
  4,572
  4,718
  4,890
  5,088
  5,313
  5,565
  5,844
  6,150
  6,485
  6,849
  7,242
  7,667
  8,124
  8,614
  9,139
  9,700
  10,299
  10,937
  11,616
  12,338
  13,106
  13,920
  14,784
  15,700
  16,670
  17,698
  18,785
  19,935
Interest expense (income), $m
  293
  137
  153
  173
  196
  221
  250
  280
  314
  351
  390
  432
  477
  525
  577
  631
  689
  750
  815
  884
  956
  1,033
  1,113
  1,198
  1,288
  1,383
  1,482
  1,587
  1,697
  1,814
  1,936
Earnings before tax, $m
  1,623
  1,783
  1,817
  1,871
  1,942
  2,033
  2,142
  2,269
  2,414
  2,578
  2,762
  3,694
  3,917
  4,160
  4,426
  4,713
  5,024
  5,358
  5,718
  6,104
  6,517
  6,960
  7,432
  7,935
  8,472
  9,044
  9,651
  10,297
  10,983
  11,712
  12,484
Tax expense, $m
  331
  481
  491
  505
  524
  549
  578
  613
  652
  696
  746
  997
  1,057
  1,123
  1,195
  1,273
  1,356
  1,447
  1,544
  1,648
  1,760
  1,879
  2,007
  2,143
  2,287
  2,442
  2,606
  2,780
  2,966
  3,162
  3,371
Net income, $m
  1,292
  1,302
  1,327
  1,365
  1,418
  1,484
  1,563
  1,656
  1,762
  1,882
  2,016
  2,696
  2,859
  3,037
  3,231
  3,440
  3,667
  3,912
  4,174
  4,456
  4,758
  5,080
  5,425
  5,793
  6,185
  6,602
  7,045
  7,517
  8,018
  8,549
  9,113

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,614
  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
  32,271
  31,299
  32,018
  32,841
  33,765
  34,789
  35,912
  37,135
  38,459
  39,885
  41,416
  43,054
  44,801
  46,661
  48,639
  50,737
  52,960
  55,314
  57,803
  60,433
  63,209
  66,139
  69,229
  72,486
  75,918
  79,532
  83,337
  87,342
  91,557
  95,991
  100,655
Adjusted assets (=assets-cash), $m
  30,657
  31,299
  32,018
  32,841
  33,765
  34,789
  35,912
  37,135
  38,459
  39,885
  41,416
  43,054
  44,801
  46,661
  48,639
  50,737
  52,960
  55,314
  57,803
  60,433
  63,209
  66,139
  69,229
  72,486
  75,918
  79,532
  83,337
  87,342
  91,557
  95,991
  100,655
Revenue / Adjusted assets
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
  0.438
Average production assets, $m
  16,815
  17,150
  17,544
  17,995
  18,501
  19,062
  19,678
  20,348
  21,073
  21,855
  22,693
  23,591
  24,548
  25,568
  26,651
  27,801
  29,019
  30,309
  31,672
  33,113
  34,635
  36,240
  37,933
  39,718
  41,598
  43,578
  45,664
  47,858
  50,168
  52,597
  55,153
Working capital, $m
  -645
  -795
  -813
  -834
  -858
  -884
  -912
  -943
  -977
  -1,013
  -1,052
  -1,094
  -1,138
  -1,185
  -1,236
  -1,289
  -1,345
  -1,405
  -1,468
  -1,535
  -1,606
  -1,680
  -1,759
  -1,841
  -1,929
  -2,020
  -2,117
  -2,219
  -2,326
  -2,439
  -2,557
Total debt, $m
  2,916
  1,615
  1,823
  2,062
  2,330
  2,627
  2,952
  3,307
  3,691
  4,105
  4,549
  5,024
  5,530
  6,070
  6,643
  7,252
  7,896
  8,579
  9,301
  10,063
  10,869
  11,718
  12,614
  13,559
  14,554
  15,602
  16,706
  17,867
  19,090
  20,375
  21,728
Total liabilities, $m
  10,377
  9,077
  9,285
  9,524
  9,792
  10,089
  10,414
  10,769
  11,153
  11,567
  12,011
  12,486
  12,992
  13,532
  14,105
  14,714
  15,358
  16,041
  16,763
  17,525
  18,331
  19,180
  20,076
  21,021
  22,016
  23,064
  24,168
  25,329
  26,552
  27,837
  29,190
Total equity, $m
  21,893
  22,222
  22,733
  23,317
  23,973
  24,700
  25,498
  26,366
  27,306
  28,319
  29,405
  30,568
  31,809
  33,130
  34,533
  36,023
  37,602
  39,273
  41,040
  42,907
  44,879
  46,959
  49,153
  51,465
  53,901
  56,468
  59,169
  62,013
  65,006
  68,154
  71,465
Total liabilities and equity, $m
  32,270
  31,299
  32,018
  32,841
  33,765
  34,789
  35,912
  37,135
  38,459
  39,886
  41,416
  43,054
  44,801
  46,662
  48,638
  50,737
  52,960
  55,314
  57,803
  60,432
  63,210
  66,139
  69,229
  72,486
  75,917
  79,532
  83,337
  87,342
  91,558
  95,991
  100,655
Debt-to-equity ratio
  0.133
  0.070
  0.080
  0.090
  0.100
  0.110
  0.120
  0.130
  0.140
  0.140
  0.150
  0.160
  0.170
  0.180
  0.190
  0.200
  0.210
  0.220
  0.230
  0.230
  0.240
  0.250
  0.260
  0.260
  0.270
  0.280
  0.280
  0.290
  0.290
  0.300
  0.300
Adjusted equity ratio
  0.661
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,292
  1,302
  1,327
  1,365
  1,418
  1,484
  1,563
  1,656
  1,762
  1,882
  2,016
  2,696
  2,859
  3,037
  3,231
  3,440
  3,667
  3,912
  4,174
  4,456
  4,758
  5,080
  5,425
  5,793
  6,185
  6,602
  7,045
  7,517
  8,018
  8,549
  9,113
Depreciation, amort., depletion, $m
  2,420
  2,444
  2,484
  2,529
  2,579
  2,635
  2,697
  2,764
  2,837
  2,915
  2,999
  2,359
  2,455
  2,557
  2,665
  2,780
  2,902
  3,031
  3,167
  3,311
  3,463
  3,624
  3,793
  3,972
  4,160
  4,358
  4,566
  4,786
  5,017
  5,260
  5,515
Funds from operations, $m
  1,789
  3,746
  3,810
  3,894
  3,997
  4,119
  4,260
  4,420
  4,599
  4,797
  5,014
  5,055
  5,314
  5,594
  5,896
  6,221
  6,569
  6,942
  7,341
  7,767
  8,221
  8,705
  9,219
  9,765
  10,344
  10,960
  11,612
  12,303
  13,035
  13,809
  14,629
Change in working capital, $m
  -1,828
  -16
  -18
  -21
  -23
  -26
  -29
  -31
  -34
  -36
  -39
  -42
  -44
  -47
  -50
  -53
  -56
  -60
  -63
  -67
  -71
  -74
  -78
  -83
  -87
  -92
  -97
  -102
  -107
  -113
  -118
Cash from operations, $m
  3,617
  3,761
  3,829
  3,915
  4,021
  4,145
  4,289
  4,451
  4,632
  4,833
  5,053
  5,097
  5,358
  5,641
  5,946
  6,274
  6,626
  7,002
  7,405
  7,834
  8,292
  8,779
  9,297
  9,847
  10,432
  11,051
  11,708
  12,405
  13,142
  13,922
  14,747
Maintenance CAPEX, $m
  0
  -1,682
  -1,715
  -1,754
  -1,800
  -1,850
  -1,906
  -1,968
  -2,035
  -2,107
  -2,185
  -2,269
  -2,359
  -2,455
  -2,557
  -2,665
  -2,780
  -2,902
  -3,031
  -3,167
  -3,311
  -3,463
  -3,624
  -3,793
  -3,972
  -4,160
  -4,358
  -4,566
  -4,786
  -5,017
  -5,260
New CAPEX, $m
  -2,362
  -335
  -394
  -451
  -506
  -561
  -615
  -670
  -725
  -782
  -839
  -897
  -957
  -1,019
  -1,083
  -1,150
  -1,218
  -1,290
  -1,364
  -1,441
  -1,521
  -1,605
  -1,693
  -1,785
  -1,880
  -1,980
  -2,085
  -2,195
  -2,309
  -2,430
  -2,556
Cash from investing activities, $m
  -2,180
  -2,017
  -2,109
  -2,205
  -2,306
  -2,411
  -2,521
  -2,638
  -2,760
  -2,889
  -3,024
  -3,166
  -3,316
  -3,474
  -3,640
  -3,815
  -3,998
  -4,192
  -4,395
  -4,608
  -4,832
  -5,068
  -5,317
  -5,578
  -5,852
  -6,140
  -6,443
  -6,761
  -7,095
  -7,447
  -7,816
Free cash flow, $m
  1,437
  1,745
  1,719
  1,710
  1,715
  1,734
  1,767
  1,813
  1,872
  1,944
  2,029
  1,930
  2,042
  2,167
  2,306
  2,459
  2,627
  2,811
  3,010
  3,226
  3,459
  3,710
  3,980
  4,269
  4,580
  4,911
  5,266
  5,644
  6,046
  6,475
  6,932
Issuance/(repayment) of debt, $m
  -539
  173
  209
  239
  268
  297
  326
  355
  384
  414
  444
  475
  507
  540
  573
  608
  645
  683
  722
  763
  805
  850
  896
  945
  995
  1,048
  1,104
  1,162
  1,222
  1,286
  1,353
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  
  -573
  173
  209
  239
  268
  297
  326
  355
  384
  414
  444
  475
  507
  540
  573
  608
  645
  683
  722
  763
  805
  850
  896
  945
  995
  1,048
  1,104
  1,162
  1,222
  1,286
  1,353
Total cash flow (excl. dividends), $m
  865
  1,918
  1,928
  1,948
  1,983
  2,031
  2,093
  2,168
  2,256
  2,358
  2,473
  2,405
  2,549
  2,706
  2,879
  3,068
  3,272
  3,493
  3,732
  3,988
  4,264
  4,560
  4,876
  5,214
  5,575
  5,959
  6,369
  6,805
  7,269
  7,761
  8,284
Retained Cash Flow (-), $m
  -214
  -469
  -511
  -584
  -656
  -727
  -797
  -868
  -940
  -1,013
  -1,087
  -1,163
  -1,241
  -1,321
  -1,404
  -1,490
  -1,579
  -1,671
  -1,767
  -1,867
  -1,971
  -2,080
  -2,194
  -2,312
  -2,436
  -2,566
  -2,702
  -2,844
  -2,992
  -3,148
  -3,311
Prev. year cash balance distribution, $m
 
  140
  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
 
  1,589
  1,417
  1,364
  1,327
  1,304
  1,295
  1,299
  1,316
  1,345
  1,386
  1,243
  1,308
  1,385
  1,475
  1,578
  1,693
  1,822
  1,965
  2,121
  2,293
  2,479
  2,682
  2,902
  3,138
  3,393
  3,667
  3,961
  4,276
  4,613
  4,973
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
 
  1,523
  1,297
  1,187
  1,093
  1,011
  940
  878
  823
  773
  727
  590
  558
  527
  495
  463
  430
  396
  362
  327
  291
  256
  223
  190
  160
  132
  107
  85
  66
  50
  37
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

Telefonica Brasil S.A. is a mobile telecommunications company in Brazil offering postpaid mobile services. The Company also operates as a fixed telecommunications company in the state of Sao Paulo. The Company markets its mobile services under its Vivo brand. It offers its clients a portfolio of products, including mobile and fixed voice, mobile data, fixed broadband, ultra-fast broadband, Pay television, information technology and digital services. Its operations consist of local and long distance fixed telephone services; mobile services, including value-added services; data services, including broadband services and mobile data services; Pay television services through direct to home (DTH), Internet protocol television (IPTV) and cable; network services, such as rental of facilities, as well as other services; wholesale services, including interconnection; digital services; services designed specifically for corporate customers, and the sale of wireless devices and accessories.

FINANCIAL RATIOS  of  Telefonica Brasil ADR (VIV)

Valuation Ratios
P/E Ratio 20.1
Price to Sales 1.9
Price to Book 1.2
Price to Tangible Book
Price to Cash Flow 7.2
Price to Free Cash Flow 20.7
Growth Rates
Sales Growth Rate 5.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 10%
Cap. Spend. - 3 Yr. Gr. Rate 5.1%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 6.6%
Total Debt to Equity 13.3%
Interest Coverage 7
Management Effectiveness
Return On Assets 4.7%
Ret/ On Assets - 3 Yr. Avg. 5.9%
Return On Total Capital 5.2%
Ret/ On T. Cap. - 3 Yr. Avg. 6.6%
Return On Equity 5.9%
Return On Equity - 3 Yr. Avg. 7.7%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 51%
Gross Margin - 3 Yr. Avg. 50.4%
EBITDA Margin 32.3%
EBITDA Margin - 3 Yr. Avg. 31.1%
Operating Margin 15%
Oper. Margin - 3 Yr. Avg. 14.2%
Pre-Tax Margin 12.1%
Pre-Tax Margin - 3 Yr. Avg. 12.2%
Net Profit Margin 9.6%
Net Profit Margin - 3 Yr. Avg. 10.7%
Effective Tax Rate 20.4%
Eff/ Tax Rate - 3 Yr. Avg. 12.9%
Payout Ratio 72.6%

VIV stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the VIV stock intrinsic value calculation we used $13440 million for the last fiscal year's total revenue generated by Telefonica Brasil ADR. The default revenue input number comes from 2016 income statement of Telefonica Brasil 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 VIV 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 4.3%, whose default value for VIV is calculated based on our internal credit rating of Telefonica Brasil 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 Telefonica Brasil 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 VIV stock the variable cost ratio is equal to 49.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $4922 million in the base year in the intrinsic value calculation for VIV 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 9.5% for Telefonica Brasil ADR.

Corporate tax rate of 27% is the nominal tax rate for Telefonica Brasil 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 VIV 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 VIV are equal to 125.1%.

Life of production assets of 10 years is the average useful life of capital assets used in Telefonica Brasil 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 VIV is equal to -5.8%. 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 - $21893 million for Telefonica Brasil 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 1598.02 million for Telefonica Brasil 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 Telefonica Brasil ADR at the current share price and the inputted number of shares is $24.6 billion.

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TEF Telefonica ADR 9.81 7.79  sell
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ORAN Orange ADR 17.40 21.85  buy
T AT&T 38.04 38.64  hold

COMPANY NEWS

▶ Telefonica Brasil posts 3Q profit   [Oct-25-17 06:55AM  Associated Press]
▶ 3Q17 Results: Telefonica Brasil S.A.   [06:34AM  PR Newswire]
▶ Telefonica Brasil S.A. Getting Closer To Key Technical Benchmark   [Sep-29-17 03:00AM  Investor's Business Daily]
▶ Telefonica Brasil misses 2Q profit forecasts   [Jul-26-17 10:23PM  Associated Press]
▶ 2Q17 Results: Telefônica Brasil S.A.   [06:03AM  PR Newswire]
▶ Four ways to play the European boom   [03:12AM  MarketWatch]
▶ Top Ranked Value Stocks to Buy for May 25th   [May-25-17 10:20AM  Zacks]
▶ Trader's Daily Notebook: Is a Battered Brazil Worth a Buy?   [May-19-17 07:00AM  TheStreet.com]
▶ Is Part Of Universal Music Up For Sale?   [May-13-17 08:00AM  Forbes]
▶ M&A in Europe Picks Up as Vivendi Offers $4.2B for Havas   [May-12-17 01:11PM  Bloomberg Video]
▶ 1Q17 Results: Telefonica Brasil S.A.   [May-09-17 05:48PM  PR Newswire]
▶ 15 Latin American Stocks To Own Now   [Apr-18-17 03:02PM  Barrons.com]
▶ Stoxx 600 Heads Lower, Silver on a Roll   [11:57AM  Bloomberg Video]
▶ Telefonica Brasil posts 4Q profit   [Feb-22-17 12:58PM  Associated Press]
▶ 4Q16 Results: Telefônica Brasil S.A.   [06:10PM  PR Newswire]
▶ Do Hedge Funds Love Telefonica Brasil SA (ADR) (VIV)?   [Dec-12-16 06:07PM  at Insider Monkey]
▶ Brazil Sinks 6% On Rate Cut, Corruption Roadblock   [Dec-01-16 06:54PM  at Barrons.com]
▶ Smart Money Is Losing Confidence in AutoZone, Inc. (AZO)   [Nov-24-16 02:44PM  at Insider Monkey]
▶ Do Hedge Funds Love Charter Communications, Inc. (CHTR)?   [Nov-23-16 09:35AM  at Insider Monkey]
▶ 3Q16 Results: Telefônica Brasil S.A.   [07:01PM  PR Newswire]
▶ Brazil's Telefonica Tumbles: CEO Leaving & Downgrade   [Oct-10-16 04:48PM  at Barrons.com]
Financial statements of VIV
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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