Transcript Stock Analysis: Feb. 15, 2001 Joel Bauman

Stock Analysis: Feb. 15, 2001
Joel Bauman
Nokia Oyj
(NOK)
Company Overview
• Leading worldwide supplier of mobile phones
and a leader in the supply of mobile, fixed and
IP networks.
• Listings on six major exchanges.
• Founded in 1865 in Finland as a paper milling
co.
• First entered telecommunications in 1960
• Streamlined company during 1990s to focus on
telecommunications.
Company History Continued
• Cellular network since 1981
• First transportable phone, 1984: weighed
4.8 kilos
• Divesting successfully since 1992
• 1995,96: sold off cable and tv industries
• Went public in 1995 (on NYSE)
• Pioneered GSM (global system for mobile
comm. As of 1997, 59 agreements in 31
countries
Trendy Handsets
• Emphasis on personal technology of
personal communication: DESIGN
• Innovated large graphic display, ringing
tones, colored covers, battery signals, etc.
• Simplicity and Style: Highly standardized
products good for production, too
• Significant economy of scale--at least 2
times that of nearest competitor (MOT)
• 18 new phone models in 1999 alone
Acquisitions
• At least 4 major divisions: Internet
Communications, Networks, Mobile Phones,
Communication Products
• All of which have been gobbling up companies
increasingly in past 3 years, for enhancing IP
networks & telephony, broadband
• 15 acquisitions, 6 divestures
• Some have been expensive: $335M for
Network Alchemy
Financial Overview
• FY 2000, sales rose 54% to EUR30.38
billion. Revenues reflect order inflow in
Nokia Networks and increased sales of
Nokia Mobile Phones.
• Net income rose 53% to EUR3.94 billion.
Earnings reflect higher operating margins.
• Total of 60,000 employees; little
outsourcing
• In 1999, sold products in over 130 countries
Wireless Warriors
Q4 2000 Numbers
NOK
Revenues
9.284B
Gross Income
3.342B
Net Income
1.204B
Gross Margins
36.0%
Net Margins
13.0%
R&D Budget
764M
R&D Percent
8.3%
Market Capitalization $139.2B
MOT
$7.736B
$3.135B
$0.199B
40.5%
2.6%
$815M
10.5%
$42.44B
ERICY
$8.327B
$1.927B
$0.228B
23.1%
2.7%
$1365M
16.4%
$77.06B
Prospects for 2001
• Revised forecast = 23-36 % growth, rather
than projected 45% growth in 2000
• Continued product launches: GPRS (2.5G)
by 3rd quarter (rudimentary internet); 3G a
year later; R&D continues at 8.5% sales
• Some outsourcing to cutback on costs (800
jobs recently cut in Texas--compare with
MOT and ERICY)
• Stock target price: $42 (revised from $55)
Branding
• Ranked the #5 most valuable worldwide brand
in 2000 at $38.5B. (KO #1, MSFT #2, IBM #3,
INTC #4, GE #6, F #7, DIS #8, MCD #9, T #10)
• Up 86% from 1999 ($20.6B); ranked higher
than AT&T (#10) and Motorola (#49)
• Popular and recognizable ring
• Sugar Bowl game sponsorship
Networking
• New network contracts within the past two
weeks alone include ventures into Bolivia
(GRPS--general packet radio service) and
Hong Kong (TETRA--Terrestrial truncated
radio system). Also, Venezuela.
• First nationwide TETRA system implemented
in Finland--will gradually replace existing
radio networks--good for government/military
purposes
• Nokia Telelcommunications changed its name
to Nokia Networks a couple of years ago.
Market Share
• Currently 32% of all handsets sold
• Twice that of Motorola and 3 times that of
Ericsson
• Plans to increase share to 35% by end of
year, if not higher, even though sales
esimates expected to decrease from 550M
to 500M units. 1 billion handset sales by the
end of 2002.
Recent Analysis
• 12-Feb-01 Wit SoundView upgrade: from Buy to Strong Buy
• 30-Jan-01 Raymond James downgrade from Strong Buy to Mkt
Perform
• Salomon Smth Brny downgrade: from Outperform to Neutral
• 23-Jan-01 Dresdner Klnwrt Bnsn downgrade from Reduce to
Sell
• 19-Jan-01Mrgn Stnly Dn Wttr downgrade: from Outperform to
Neutral
• 18-Jan-01 JP Morgan initiated: at Buy
• 5-Jan-01 Dain Rauscher Wessels initiated: at Buy Aggressive
• 19-Oct-00 Chase H&Q upgrade: from Buy to Strong Buy
• 18-Oct-00 First Union Sec downgrade:from Strong Buy to Buy
• 13-Sep-00 Sands Brothers initiated: at Buy
Current Recommendations
• Despite downgrades, 23 out of 26 analysts
recommend NOK as either a strong or
moderate buy.
• No one recommends sell --taken from
Yahoo! Finance “research” option
Stock Chart
Stock Quote
NOKIA CORP (NYSE:NOK) - More Info: News , Msgs , Profile , Research ,
Insider , Options
Last Trade
Change
Prev Cls
Volume
Div Date
2:33PM · 29.70
+1.47 (+5.21%)
28.23
15,438,700 Apr 10, 2000
Day's Range
28.5 - 29.75
52-week Range
26.4900 - 62.5000
Bid
N/A
Ask
N/A
Open
0.00
Earn/Shr P/E Mkt Cap
0.76
37.14 139.2B
Avg Vol
13,619,545
Ex-Div
Apr 11, 2000
Div/Shr
0.19
Yield
0.68
1 Year Relative Performance
1 Year Relative Performance
Valuation
Share Price
2000 EPS
2001 EPS
NOK
$29.51
$0.73
$0.88
MOT
$19.44
$0.84
$0.83
ERICY
$9.81
$0.17
$0.25
Dividends
Yield
P/E (2000)
$0.19
0.68%
40.4
$0.16
0.84%
23.1
$0.06
0.61%
57.7
P/E (2001)
5 Yr Earn Grow
PEG (2001)
33.5
26.8%
1.25
23.4
18.5%
1.26
39.4
24.9%
1.58
Valuation Continued
Share Price
Price/Book
Price/Sales
NOK
$29.51
14.92
4.86
MOT
$19.44
2.23
1.15
ERICY
$9.81
8.60
2.47
Current Ratio
Debt/Equity
Return on Assets
1.47
0.14
24.34%
1.22
0.57
3.05%
1.32
0.05
9.35%
Return on Equity
47.67%
6.59%
25.76%
Return Equity = Effectiveness of management in using retained
net income and turning it into additional net income.
Revenue Comparison
40
NOK
35
MOT
ERICY
Billions of Dollars
30
25
20
15
10
5
0
1997
1998
1999
Year
2000
Earnings Per Share Comparison
1
NOK
MOT
ERICY
0.8
Earnings Per Share in Dollars
0.6
0.4
0.2
0
1997
1998
1999
-0.2
-0.4
-0.6
-0.8
Year
2000
Why Buy?
• At a P/E of 37, NOK seems to be heavily
undervalued compared to the rest of the
Telecom sector, which has an average P/E
of 100
• Bottom Fishing? 52 week low occurred
yesterday during trading.
Review
•
•
•
•
Industry leader and pioneer
Strong sales, earnings growth
Global expansion
Two-pronged attack: mobile phones and
networks (fixed, mobile, and IP)
• Keen sense of consumer and business trends
• Possibly undervalued company due to
investor anxiety over recent growth
Caution
• Warned that will not meet first quarter
growth expectations--but is 35% so bad?!?
• Penetrance rate in Europe = 60%, much
higher in Scandinavia
• Growth from replacement phones not as fast
as anticipated--data traffic (2nd gen) phones
unnecessary if applications and networks
not up to date
• New competition from Siemens, Sony
The Future
• Short term: Aggressive take over of market
share from Motorola, Ericsson; only one left
standing in 3 years
• Concentrate on network infrastructure until
data traffic becomes realistic option.
• Long term: commitment to broadband
solutions, wireless data applications,
increasingly user-friendly mobile devices
and third-generation mobile telephony