Intrinsic value of Telecom Italia ADR - TI

Previous Close

$9.12

  Intrinsic Value

$21.66

stock screener

  Rating & Target

str. buy

+138%

  Value-price divergence*

+81%

Previous close

$9.12

 
Intrinsic value

$21.66

 
Up/down potential

+138%

 
Rating

str. buy

 
Value-price divergence*

+81%

*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 18.3

 

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
  7.40
  7.16
  6.94
  6.75
  6.57
  6.42
  6.28
  6.15
  6.03
  5.93
  5.84
  5.75
  5.68
  5.61
  5.55
  5.49
  5.44
  5.40
  5.36
  5.32
  5.29
  5.26
  5.24
  5.21
  5.19
  5.17
  5.16
  5.14
  5.13
  5.11
Revenue, $m
  20,079
  21,565
  23,109
  24,714
  26,382
  28,116
  29,920
  31,798
  33,753
  35,789
  37,912
  40,124
  42,433
  44,842
  47,358
  49,986
  52,732
  55,603
  58,606
  61,747
  65,035
  68,476
  72,080
  75,854
  79,808
  83,951
  88,294
  92,845
  97,617
  102,620
  107,867
Variable operating expenses, $m
 
  18,099
  19,171
  20,285
  21,443
  22,648
  23,901
  25,204
  26,562
  27,976
  29,449
  27,860
  29,463
  31,136
  32,883
  34,708
  36,614
  38,608
  40,693
  42,874
  45,157
  47,546
  50,049
  52,669
  55,415
  58,292
  61,307
  64,467
  67,780
  71,254
  74,898
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
  18,099
  19,171
  20,285
  21,443
  22,648
  23,901
  25,204
  26,562
  27,976
  29,449
  27,860
  29,463
  31,136
  32,883
  34,708
  36,614
  38,608
  40,693
  42,874
  45,157
  47,546
  50,049
  52,669
  55,415
  58,292
  61,307
  64,467
  67,780
  71,254
  74,898
Operating income, $m
  3,928
  3,466
  3,938
  4,428
  4,938
  5,468
  6,020
  6,594
  7,191
  7,814
  8,462
  12,264
  12,970
  13,706
  14,475
  15,278
  16,118
  16,995
  17,913
  18,873
  19,878
  20,930
  22,031
  23,185
  24,393
  25,660
  26,987
  28,378
  29,837
  31,366
  32,970
EBITDA, $m
  8,457
  8,684
  9,305
  9,952
  10,623
  11,322
  12,048
  12,804
  13,591
  14,411
  15,266
  16,157
  17,087
  18,057
  19,070
  20,128
  21,234
  22,390
  23,599
  24,864
  26,188
  27,574
  29,025
  30,545
  32,137
  33,805
  35,554
  37,386
  39,308
  41,323
  43,436
Interest expense (income), $m
  2,434
  2,081
  2,321
  2,574
  2,837
  3,111
  3,395
  3,691
  3,999
  4,319
  4,653
  5,001
  5,364
  5,742
  6,137
  6,550
  6,981
  7,431
  7,902
  8,394
  8,909
  9,448
  10,013
  10,603
  11,222
  11,871
  12,550
  13,262
  14,008
  14,791
  15,611
Earnings before tax, $m
  2,954
  1,385
  1,617
  1,854
  2,101
  2,358
  2,625
  2,903
  3,193
  3,494
  3,809
  7,263
  7,606
  7,964
  8,337
  8,728
  9,137
  9,564
  10,011
  10,479
  10,969
  11,481
  12,019
  12,581
  13,171
  13,789
  14,437
  15,116
  15,828
  16,575
  17,359
Tax expense, $m
  929
  374
  437
  501
  567
  637
  709
  784
  862
  943
  1,028
  1,961
  2,054
  2,150
  2,251
  2,357
  2,467
  2,582
  2,703
  2,829
  2,962
  3,100
  3,245
  3,397
  3,556
  3,723
  3,898
  4,081
  4,274
  4,475
  4,687
Net income, $m
  1,908
  1,011
  1,180
  1,354
  1,534
  1,721
  1,916
  2,119
  2,331
  2,551
  2,781
  5,302
  5,552
  5,813
  6,086
  6,372
  6,670
  6,982
  7,308
  7,650
  8,007
  8,381
  8,774
  9,184
  9,615
  10,066
  10,539
  11,035
  11,555
  12,100
  12,672

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
  73,101
  78,335
  83,775
  89,429
  95,309
  101,425
  107,790
  114,417
  121,320
  128,514
  136,015
  143,840
  152,007
  160,535
  169,443
  178,752
  188,485
  198,663
  209,312
  220,456
  232,123
  244,338
  257,133
  270,536
  284,581
  299,300
  314,729
  330,905
  347,866
  365,653
Adjusted assets (=assets-cash), $m
  68,153
  73,101
  78,335
  83,775
  89,429
  95,309
  101,425
  107,790
  114,417
  121,320
  128,514
  136,015
  143,840
  152,007
  160,535
  169,443
  178,752
  188,485
  198,663
  209,312
  220,456
  232,123
  244,338
  257,133
  270,536
  284,581
  299,300
  314,729
  330,905
  347,866
  365,653
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
  25,317
  27,130
  29,014
  30,972
  33,008
  35,127
  37,331
  39,626
  42,017
  44,508
  47,106
  49,816
  52,645
  55,598
  58,683
  61,907
  65,278
  68,803
  72,491
  76,351
  80,391
  84,622
  89,053
  93,695
  98,559
  103,657
  109,000
  114,602
  120,476
  126,636
Working capital, $m
  -715
  -2,911
  -3,120
  -3,336
  -3,562
  -3,796
  -4,039
  -4,293
  -4,557
  -4,832
  -5,118
  -5,417
  -5,728
  -6,054
  -6,393
  -6,748
  -7,119
  -7,506
  -7,912
  -8,336
  -8,780
  -9,244
  -9,731
  -10,240
  -10,774
  -11,333
  -11,920
  -12,534
  -13,178
  -13,854
  -14,562
Total debt, $m
  34,360
  33,636
  37,305
  41,118
  45,082
  49,204
  53,491
  57,953
  62,598
  67,437
  72,480
  77,738
  83,224
  88,949
  94,927
  101,171
  107,697
  114,520
  121,655
  129,120
  136,932
  145,110
  153,673
  162,642
  172,038
  181,883
  192,201
  203,017
  214,356
  226,246
  238,714
Total liabilities, $m
  51,968
  51,244
  54,913
  58,726
  62,690
  66,812
  71,099
  75,561
  80,206
  85,045
  90,088
  95,346
  100,832
  106,557
  112,535
  118,779
  125,305
  132,128
  139,263
  146,728
  154,540
  162,718
  171,281
  180,250
  189,646
  199,491
  209,809
  220,625
  231,964
  243,854
  256,322
Total equity, $m
  22,382
  21,857
  23,422
  25,049
  26,739
  28,497
  30,326
  32,229
  34,211
  36,275
  38,426
  40,668
  43,008
  45,450
  48,000
  50,663
  53,447
  56,357
  59,400
  62,584
  65,916
  69,405
  73,057
  76,883
  80,890
  85,090
  89,491
  94,104
  98,941
  104,012
  109,330
Total liabilities and equity, $m
  74,350
  73,101
  78,335
  83,775
  89,429
  95,309
  101,425
  107,790
  114,417
  121,320
  128,514
  136,014
  143,840
  152,007
  160,535
  169,442
  178,752
  188,485
  198,663
  209,312
  220,456
  232,123
  244,338
  257,133
  270,536
  284,581
  299,300
  314,729
  330,905
  347,866
  365,652
Debt-to-equity ratio
  1.535
  1.540
  1.590
  1.640
  1.690
  1.730
  1.760
  1.800
  1.830
  1.860
  1.890
  1.910
  1.940
  1.960
  1.980
  2.000
  2.020
  2.030
  2.050
  2.060
  2.080
  2.090
  2.100
  2.120
  2.130
  2.140
  2.150
  2.160
  2.170
  2.180
  2.180
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
  1,011
  1,180
  1,354
  1,534
  1,721
  1,916
  2,119
  2,331
  2,551
  2,781
  5,302
  5,552
  5,813
  6,086
  6,372
  6,670
  6,982
  7,308
  7,650
  8,007
  8,381
  8,774
  9,184
  9,615
  10,066
  10,539
  11,035
  11,555
  12,100
  12,672
Depreciation, amort., depletion, $m
  4,529
  5,218
  5,367
  5,523
  5,685
  5,853
  6,028
  6,210
  6,400
  6,598
  6,804
  3,893
  4,117
  4,351
  4,595
  4,850
  5,116
  5,395
  5,686
  5,991
  6,310
  6,644
  6,994
  7,360
  7,743
  8,145
  8,567
  9,008
  9,471
  9,957
  10,466
Funds from operations, $m
  5,526
  6,228
  6,548
  6,877
  7,219
  7,574
  7,944
  8,330
  8,731
  9,149
  9,584
  9,195
  9,669
  10,164
  10,681
  11,221
  11,786
  12,377
  12,994
  13,641
  14,317
  15,025
  15,767
  16,544
  17,358
  18,211
  19,106
  20,043
  21,026
  22,057
  23,138
Change in working capital, $m
  -449
  -201
  -208
  -217
  -225
  -234
  -244
  -253
  -264
  -275
  -287
  -299
  -312
  -325
  -340
  -355
  -371
  -388
  -405
  -424
  -444
  -465
  -486
  -510
  -534
  -559
  -586
  -614
  -644
  -675
  -708
Cash from operations, $m
  5,975
  6,429
  6,756
  7,093
  7,444
  7,809
  8,188
  8,583
  8,995
  9,424
  9,871
  9,494
  9,981
  10,489
  11,021
  11,576
  12,157
  12,764
  13,400
  14,065
  14,761
  15,490
  16,254
  17,054
  17,892
  18,771
  19,692
  20,658
  21,670
  22,732
  23,846
Maintenance CAPEX, $m
  0
  -1,948
  -2,092
  -2,242
  -2,398
  -2,560
  -2,728
  -2,903
  -3,085
  -3,275
  -3,472
  -3,678
  -3,893
  -4,117
  -4,351
  -4,595
  -4,850
  -5,116
  -5,395
  -5,686
  -5,991
  -6,310
  -6,644
  -6,994
  -7,360
  -7,743
  -8,145
  -8,567
  -9,008
  -9,471
  -9,957
New CAPEX, $m
  -5,391
  -1,751
  -1,813
  -1,884
  -1,958
  -2,036
  -2,118
  -2,204
  -2,295
  -2,391
  -2,492
  -2,598
  -2,710
  -2,828
  -2,953
  -3,085
  -3,224
  -3,371
  -3,525
  -3,688
  -3,860
  -4,040
  -4,231
  -4,431
  -4,642
  -4,864
  -5,098
  -5,344
  -5,602
  -5,874
  -6,160
Cash from investing activities, $m
  -4,184
  -3,699
  -3,905
  -4,126
  -4,356
  -4,596
  -4,846
  -5,107
  -5,380
  -5,666
  -5,964
  -6,276
  -6,603
  -6,945
  -7,304
  -7,680
  -8,074
  -8,487
  -8,920
  -9,374
  -9,851
  -10,350
  -10,875
  -11,425
  -12,002
  -12,607
  -13,243
  -13,911
  -14,610
  -15,345
  -16,117
Free cash flow, $m
  1,791
  2,731
  2,851
  2,967
  3,088
  3,213
  3,342
  3,476
  3,614
  3,758
  3,907
  3,217
  3,378
  3,544
  3,717
  3,896
  4,083
  4,277
  4,480
  4,690
  4,910
  5,140
  5,379
  5,629
  5,890
  6,163
  6,449
  6,747
  7,060
  7,387
  7,729
Issuance/(repayment) of debt, $m
  -1,098
  3,472
  3,669
  3,813
  3,964
  4,122
  4,287
  4,462
  4,645
  4,839
  5,043
  5,258
  5,485
  5,725
  5,978
  6,245
  6,526
  6,823
  7,135
  7,465
  7,812
  8,178
  8,563
  8,969
  9,396
  9,845
  10,318
  10,816
  11,339
  11,890
  12,468
Issuance/(repurchase) of shares, $m
  4
  465
  385
  273
  157
  37
  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
  3,937
  4,054
  4,086
  4,121
  4,159
  4,287
  4,462
  4,645
  4,839
  5,043
  5,258
  5,485
  5,725
  5,978
  6,245
  6,526
  6,823
  7,135
  7,465
  7,812
  8,178
  8,563
  8,969
  9,396
  9,845
  10,318
  10,816
  11,339
  11,890
  12,468
Total cash flow (excl. dividends), $m
  1,017
  6,668
  6,905
  7,053
  7,208
  7,371
  7,629
  7,938
  8,260
  8,597
  8,950
  8,476
  8,863
  9,269
  9,695
  10,141
  10,609
  11,100
  11,615
  12,155
  12,722
  13,318
  13,942
  14,598
  15,286
  16,009
  16,767
  17,563
  18,399
  19,276
  20,198
Retained Cash Flow (-), $m
  -3,855
  -1,476
  -1,565
  -1,626
  -1,691
  -1,758
  -1,829
  -1,903
  -1,981
  -2,064
  -2,151
  -2,243
  -2,340
  -2,442
  -2,550
  -2,664
  -2,784
  -2,910
  -3,043
  -3,184
  -3,332
  -3,488
  -3,652
  -3,826
  -4,008
  -4,199
  -4,401
  -4,613
  -4,837
  -5,071
  -5,318
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
 
  7,193
  5,340
  5,427
  5,518
  5,613
  5,801
  6,034
  6,278
  6,533
  6,799
  6,233
  6,523
  6,827
  7,145
  7,477
  7,825
  8,190
  8,571
  8,971
  9,390
  9,829
  10,290
  10,772
  11,279
  11,809
  12,366
  12,950
  13,562
  14,205
  14,879
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
 
  6,679
  4,571
  4,250
  3,921
  3,589
  3,305
  3,035
  2,757
  2,477
  2,200
  1,699
  1,478
  1,268
  1,071
  890
  727
  584
  460
  355
  268
  198
  143
  101
  69
  46
  30
  19
  11
  7
  4
Current shareholders' claim on cash, %
  100
  97.3
  95.2
  93.9
  93.2
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0
  93.0

Telecom Italia S.p.A. (Telecom Italia) operates fixed voice and data infrastructure in Italy, and provides mobile network platforms. The Company focuses on various areas of digital services, including Enriched Communication, Trusted Digital Life, Business Life, Indoor Life, Mobile Open Life and Digital Entertainment. Its segments include Consumer, Business, National Wholesale and Other. It is engaged in developing various projects in areas, including Smart Green, Social Reading, Solutions for good schooling, Digital tourism 2.0, Smart Home, FriendTV and Big Data. Smart Green is the assessment of projects connected with the environment and potential partnerships with the local government offices for the monitoring of air in public offices and urban areas, using networks of sensors connected to the Company's Cloud. The Company is involved, either alone or in partnership with external partners, in devising and developing healthcare services at national, regional and local level.

FINANCIAL RATIOS  of  Telecom Italia ADR (TI)

Valuation Ratios
P/E Ratio 101.3
Price to Sales 9.6
Price to Book 8.6
Price to Tangible Book
Price to Cash Flow 32.3
Price to Free Cash Flow 331
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 7.4% 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 2004.11 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 $18.3 billion.

RELATED COMPANIES Price Int.Val. Rating
TEF Telefonica ADR 10.38 8.04  sell
VOD Vodafone Group 28.98 17.21  sell
BT BT Group ADR 18.12 27.33  buy

COMPANY NEWS

▶ IIROC Trade Resumption - TI   [Oct-19-17 09:17AM  PR Newswire]
▶ IIROC Trading Halt - TI   [08:15AM  CNW Group]
▶ [$$] Fund managers face shortage of European junk bonds   [Oct-18-17 09:13AM  Financial Times]
▶ This is How a French Billionaire Retires   [Oct-17-17 12:42AM  Bloomberg]
▶ Italy passes decree to ward off foreign takeovers   [Oct-13-17 02:30PM  Reuters]
▶ [$$] Telecom Italia: call waiting   [Sep-18-17 11:47AM  Financial Times]
▶ PRESS DIGEST- Financial Times - July 25   [Jul-24-17 07:55PM  Reuters]
▶ [$$] Business Watch   [07:46PM  The Wall Street Journal]
▶ PRESS DIGEST- Financial Times - July 24   [Jul-23-17 08:12PM  Reuters]
▶ [$$] Telecom Italia Appoints Vivendi CEO as Chairman   [Jun-01-17 01:42PM  The Wall Street Journal]
▶ [$$] EU urged to push ahead with telecoms deregulation   [May-25-17 08:49AM  Financial Times]
▶ ETFs with exposure to Telecom Italia SpA : April 20, 2017   [Apr-20-17 02:32PM  Capital Cube]
▶ Where Cypress Stands Now in Body Electronics   [Apr-11-17 05:53PM  Market Realist]
▶ [$$] 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]
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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