These financial ratios enable us to evaluate the performance of Telus Corporation in recent years. Look at the table above, we can see some positive sign such as the increase in total assets turnover, net profit margin and ROA. Together with that, Telus seems less likely to use debt financing its assets (0.61 in 2009, fall to 0.58 in 2010). The equity multiplier and ROE, in contrast, tend to reduce in this period. ROE, from 13% in 2008, increase a little in 2009 but then fall to 12.69% in 2010. ROE is equal ROA multi equity plier, so, as ROA increases, the decrease of ROE is a result of decrease in equity multiplier. As under DuPont system, maximizing ROE is considered as an appropriate goal for a firm, this seems to be a negative sign. As in the global economic downturn, this slight negative sign is understandable.
Trang 1Corporate Finance INDIVIDUAL ASSIGNMENT
Class:
STUDY ON: LETUS CORPORATION
Trang 2Table contents
Table contents 1
I Introduction to the Telus Corporation 2
II Analysis of the company 2
1 Current situation 2
2 Telus Corporation’s recent years performance 4
III Analysis of the Telus’s stock 6
1 Stock price over times 6
2 Stock valuation 7
a Estimation of required of return 7
b Assumption of the growth rate of dividend 7
c The intrinsic value of the stock 9
d Conclusion 10
References 10
Appendices 11
Appendix 1 11
Appendix 2 12
Appendix 3 14
Trang 3I Introduction to the Telus Corporation
Telus Corporation (Symbol TU), established in 1993 in Burnaby, Canada, is a national telecommunications company that provides a wide range of telecommunications products and
services including wireless, data, Internet protocol (IP), voice, and television
The company operates through 2 segments: Wireless and Wireline
- The wireless segments provides digital personal communications, equipment sales, and
wireless internet services
- The wireline segment offers voice local and voice long distance services, data services,
which include television, and managed and legacy data services, as well as internet,
enhanced data, and hosting services, and other telecommunications services
Over its history, Telus has been delivering innovative telecommunications solutions to
Canadian and become the second largest telecommunication company in Canada
Telus’s strategic intent is to unleash the power of the Internet to deliver the best solutions to Canadians at home, in the workplace and on the move
Some recent important projects:
- February 7, 2012, new innovation from Telus – Optick TV – become the first service in
the world to enable the customers to control both live and recorded TV using hand
gestures and voice commands
- February 9, 2012, Telus launched 4G LTE wireless network which went live in 14
metropolitan areas across Canada
II Analysis of the company
1 Current situation
The table following partly shows the position of Telus Corporation in comparison with its
competitors as well as the whole wireless communication industry (figure of October 6, 2012)
Trang 4( http://finance.yahoo.com )
Trang 5The figures, particularly the rank in the second tables partly show us Telus has a quite high
position in the industry Some typical figures can be addressed like P/E = 16.61, ranked
40/200, dividend yield (annual) of 3.90%, ranked 11/200 Revenue of Telus (10.67 billion
dollars) is much higher than the industry in general (2.52 billion dollars), even though it’s
lower than some of its competitors such as BCE (10.16 billion dollars) or RCI (12.58 billion
dollars)
2 Telus Corporation’s recent years performance
The table, and the corresponding graph, below shows main figures (Revenue and Net income)
in the Income statement of Letus
( http://finance.yahoo.com )
Overall, Telus Corporation has witnessed a growth recent years Evidently, both revenue and
net income of the corporation have increased, even though the rate of growth tends to be
smaller Particularly, look at the graph for Net income it’s clear that Telus’s net income grows
quite stably through years
In the next table, I compute some typical financial ratios for Telus Corporation during three
years, 2008, 2009 and 1010
Trang 6(The detail figures are in the Balance Sheet, Income Statement and Cash Flow of Telus for
2008, 2009, and 2010 that are in enclosed in Appendices)
Current ratios
s liabilitie Current
assets Current
Total assets turnover
assets Total
sales Net
Total debt ratios
asset Total
debt Total
Net profit margin
sales Net
income Net
10.61% 10.43% 10.84%
Equity multiplier
equity Total
assets Total
DuPont
ROA
turnover asset
Total
* margin profit
Net
5.31% 5.22% 5.20%
ROE
multiplier Equity
ROA ROE *
12.69% 13.26% 13.00%
These financial ratios enable us to evaluate the performance of Telus Corporation in recent
years
Look at the table above, we can see some positive sign such as the increase in total assets
turnover, net profit margin and ROA Together with that, Telus seems less likely to use debt
financing its assets (0.61 in 2009, fall to 0.58 in 2010)
The equity multiplier and ROE, in contrast, tend to reduce in this period ROE, from 13% in
2008, increase a little in 2009 but then fall to 12.69% in 2010 ROE is equal ROA multi
equity plier, so, as ROA increases, the decrease of ROE is a result of decrease in equity
Trang 7multiplier As under DuPont system, maximizing ROE is considered as an appropriate goal
for a firm, this seems to be a negative sign As in the global economic downturn, this slight
negative sign is understandable
Conclusion: Telus Corporation is less likely to use debt financing its assets, which reduce
equity multiplier and ROE a little bit However, overall the Corporation still witness a constant
growth through years (quite constant increase in Net income)
III Analysis of the Telus’s stock
1 Stock price over times
Trang 8( http://finance.yahoo.com )
The first graph shows the price of common stock of Telus from 2008 until now As you can
see, in 2008-2009, because of the global economic recession, the price of Telus felt sharply
($31.15 in December, 2009) But soon after, from 2009 until now, the price increase
constantly And the second picture is the price and some information for TU share of stock in
the trading day 5/10/2012 The price reaches $64.27 per share of stock
2 Stock valuation
Now, I get today, Saturday, October 6, 2012 as the time zero to calculate the present intrinsic
value of share of stock for TU
a Estimation of required of return
The required rate of return, or the expected return is computed by the equation:
] )
( [ )
- for the Telus Corporation is 0.6 (http://finance.yahoo.com/q?s=TU)
- Expected return E(Rm) is the average value of the U.S stock market, 12.5%
- Risk free (Rrf) is the expected return for US government treasury 30-year bond As I
suppose the time zero is today, Saturday, October 6, 2012, I get the value of risk free for
October 5, 2012 So, risk free R rf = 2.96 (http://www.treasury.gov)
8.68%
or
R R
E R
R
08684
0
] 0296
0 125
0 [
* 6 0 0296
0
] )
( [ )
(
b Assumption of the growth rate of dividend
Trang 9The dividend of the Corporation recent years is shown in the graph below
As it’s shown in the table and in the graph, especially the red line in the table, dividend of Telus Corporation had decreased a little in 2008, but quickly rise again in later year, until the
end of 2011, dividend was $0.57
Generally, the dividend increase but the growth rate is not constant: 3.08% in 2008; 10.34%
in 2009; 15.63% in 2010 and 11.17% in 2011(Based on dividend in September each year)
I expect the dividend and growth rate for the next four year would be like below
And, after four year of fast growing, Telus will experience a constant growth rate of 7.51%
Trang 10c The intrinsic value of the stock
Now, let’s sum up all of assumptions that have been made
Firstly, I computed the required rate of return for TU stock is 8.68%
I also expected dividends for next four year of fast-growing before it constantly grows at rate
of 7.51%
Year Dividend Growth rate
Trang 112103 0.689 11.67
(Constantly grow from 2017 at 7.51%)
The price for TU stock at the end of the fourth year would be:
18 83
$ 0751 0 0868 0
973 0
2017
2017 2016
g R
D P
Finally, I can calculate the present intrinsic value of TU share of stock (at the day 6/10/2012)
20 62
$
) 0868 0 1 (
18 83 )
0868 0 1 (
905 0 )
0868 0 1 (
834 0 )
0868 0 1 (
761 0 )
0868 0 1 (
689 0
) 1 ( ) 1 ( ) 1 ( ) 1 ( ) 1 (
4 4
3 2
4
2016 4
2016 3
2015 2
2014 2013
2012 0
R
P R
D R
D R
D R
D P
P
The present intrinsic value of TU is $62.20 per share of stock
The quoted price for TU stock is actually $64.27 per share of stock
(http://finance.yahoo.com)
So, the stock of Telus Corporation (TU) is being over-valued
We should sell the TU stock at the moment
References
Book:
Fundamentals of Corporate Finance, 2 nd edition
Trang 12Websites:
http://finance.yahoo.com
http://www.treasury.gov
http://telus.com/en_CA/bcHome_en.html
http://online.wsj.com/mdc/public/page/2_3022-bondmkt.html
Appendices
Appendix 1
Balance sheet of Telus Corporation for 2008, 2009 and 2010
(Currency in thousand USD)
Period Ending Dec 30, 2010 Dec 30, 2009 Dec 30, 2008
Assets
Current Assets
Cash And Cash Equivalents 25,000 43,000 3,273
Net Receivables 973,000 710,000 810,935
Inventory 283,000 270,000 272,494
Other Current Assets 113,000 105,000 180,026
Long Term Investments 37,000 41,000 -
Property Plant and Equipment 7,722,000 7,729,000 5,987,501
Goodwill 3,572,000 3,572,000 3,245,378
Intangible Assets 5,134,000 5,148,000 5,460,516
Other Assets 1,744,000 1,602,000 600,632
Deferred Long Term Asset Charges - - -
Trang 13Total Assets 19,599,000 19,219,000 16,568,938
Liabilities
Current Liabilities
Accounts Payable 2,676,000 2,685,000 2,436,897
Short/Current Long Term Debt 1,162,000 144,000 64,646
Other Current Liabilities 111,000 135,000 -
Long Term Debt 5,313,000 6,090,000 5,217,481
Other Liabilities 638,000 1,271,000 1,027,785
Deferred Long Term Liability Charges 1,498,000 1,319,000 1,181,625
Minority Interest 22,000 21,000 18,821
Stockholders' Equity
Other Stockholder Equity - - (425,516)
Appendix 2
Income statement of Telus Corporation for 2008, 2009 and 2010
(Currency in thousand USD)
Trang 14Income Statement View: Annual Data | Quarterly Data All numbers in thousands
Period Ending Dec 31, 2010 Dec 31, 2009 Dec 31, 2008
Cost of Revenue 6,062,000 5,925,000 2,697,935
Operating Expenses
Selling General and Administrative - - 2,111,214
Non Recurring 74,000 190,000 48,280
Others 1,735,000 1,722,000 1,442,663
Total Operating Expenses - - -
Income from Continuing Operations
Total Other Income/Expenses Net (542,000) (564,000) (18,003)
Earnings Before Interest And Taxes 1,366,000 1,205,000 1,615,324
Interest Expense - - 390,329
Income Before Tax 1,366,000 1,205,000 1,224,995
Income Tax Expense 328,000 203,000 322,410
Minority Interest - - (2,455)
Net Income From Continuing Ops 1,038,000 1,002,000 865,761
Non-recurring Events
Discontinued Operations - - -
Effect Of Accounting Changes - - -
Preferred Stock And Other Adjustments - - -
Trang 15
Appendix 3
Cash flows of Telus Corporation for 2008, 2009 and 2010
(Currency in thousand USD)
Cash Flow View: Annual Data | Quarterly Data All numbers in thousands
Period Ending Dec 30,
2010
Dec 30,
2009
Dec 30,
2008
Operating Activities, Cash Flows Provided By or Used In
Depreciation 1,735,000 1,722,000 1,404,203
Adjustments To Net Income 9,000 (159,000) (19,639)
Changes In Accounts Receivables - - (177,571)
Changes In Liabilities - - 21,276
Changes In Inventories - - (73,647)
Changes In Other Operating Activities (236,000) 339,000 229,124
Total Cash Flow From Operating
Investing Activities, Cash Flows Provided By or Used In
Capital Expenditures (1,721,000) (2,103,000) (1,521,220)
Other Cash flows from Investing Activities 14,000 (25,000) (1,288,004)
Total Cash Flows From Investing
Financing Activities, Cash Flows Provided By or Used In
Dividends Paid (476,000) (608,000) (358,415)
Sale Purchase of Stock 15,000 1,000 (229,124)
Net Borrowings (402,000) (132,000) 1,076,883
Other Cash Flows from Financing Activities - - -
Total Cash Flows From Financing
Effect Of Exchange Rate Changes - - -