Monday, April 11, 2022

T-Mobile Netherlands: 3 scenarios for value creation, annual return 25% at base case

Three scenarios for value creation in the takeover of T-Mobile Netherlands, based on a number of assumptions:

  • TMNL's 2021 results
  • Not paying taxes.
  • Not paying dividends, instead reducing debt.
  • Slowing revenue growth; EBITDA growth 2x revenue growth (margin expansion); Capex growth 0.9x revenue growth (Capex-to-Sales declining).
Three scenarios:
  • Base case: return CAGR 16.5%. FCF generation is insufficient to prevent a multiple contraction. The enterprise value increases from EUR 5.1 to 5.5 billion.
  • Stable multiple case (8.0x): return CAGR 25.3%. EV increases from EUR 5.1 to 8.1 billion.
  • Expanding multiple (to 11.0x): return CAGR 32.2%. EV grows from EUR 5.1 to 11.1 billion.

(EUR millions)2021202220232024202520262027
LBO debt redux scenario 1: multiple contraction
rev growth (%)5%5%4%4%3%3%
EBITDA AL6346977678298959481005
EBITDA growth (%)10%10%8%8%6%6%
EBITDA margin (%)30.6%32.1%33.6%34.9%36.2%37.3%38.4%
Capex growth (%)4.5%4.5%3.6%3.6%2.7%2.7%
Capex/Sales ratio (%)13.2%13.2%13.1%13.1%13.0%13.0%12.9%
Oper FCF360411468519574619667
Oper FCF/Sales ratio (%)17.4%18.9%20.5%21.8%23.2%24.3%25.4%
Net debt3750354632822950255420861554
Net FCF204264332396468532602
Net FCF/Sales ratio (%)9.9%12.1%14.5%16.7%18.9%20.9%23.0%
Net FCF cumulative2044688001196166421962798
Equity value1350161419462342280933423944
Enterprise value (EV)5100516052275292536354285498
LBO debt redux scenario 2: multiple stabilisation
Enterprise value (EV)5100561061716665719876308088
Equity value1350206428893715464455446533
LBO debt redux scenario 3: multiple expansion
Enterprise value (EV)51005928690478718948995911059
Equity value1350238236234921639478739505