DBAB: TGNT: Look! Operating Metrics! Reports Strong 2Q99 Results
Deutsche Banc Alex. Brown - US Equities
Bo Fifer,Jeffrey L. Hines
August 12, 1999
Fifer, Bo 212-471-3040 08/12/1999
Hines, Jeff L 212-471-3008
Deutsche Banc Alex. Brown
---------------------------------------------------------------------------
----
TELIGENT INC. [TGNT] "STRONG BUY"
Look! Operating Metrics! Reports Strong 2Q99 Results
---------------------------------------------------------------------------
----
Date: 08/12/1999 EPS 1998A 1999E 2000E
Price: 64.0 1Q (0.73) (2.05) (2.69)
52-Wk Range: 76 - 18 2Q (1.12) (2.34)A (2.62)
Ann Dividend: 0.0 3Q (1.49) (2.67) (2.64)
Ann Div Yld: 0.00% 4Q (2.00) (2.78) (2.50)
Mkt Cap (mm): 4,307 FY(Dec.) (5.35) (9.84) (10.45)
3-Yr Growth: FY P/EPS NM NM NM
CY EPS (5.35) (9.84) (10.45)
Est. Changed Yes CY P/EPS NM NM NM
---------------------------------------------------------------------------
----
Industry: COMMUNICATIONS
Shares Outstanding(Mil.): 67.3
Return On Equity (1998) : 0.0%
---------------------------------------------------------------------------
----
HIGHLIGHTS:
-- Teligent reported strong 2Q 1999 results last night (11-Aug) after the
market's close, giving us our first real taste of meaningful operating
metrics.
-- 2Q 1999 OPERATING HIGHLIGHTS
Metric 2Q99E 2Q99A 1Q99A
Access Lines 25,000 37,526 17,579
Subscribers 4,500 3,534 2,500
Roof Rights 3,700 4,252 3,100
Buildings On-Net 1,100 1,520 800
Markets 28 28 20
Source: Company documents, Deutsche Banc Alex. Brown estimates.
-- NEW SERVICES UNDER DEVELOPMENT: Teligent announced a DSL service in
1Q99 aimed at small businesses craving low-cost, high speed Internet
access. Today, Teligent announced the development of it's own "IP
platform" to bring ISP services in-house and reap the incremental
margin of facilities-based services.
-- NET-NET: Make no mistake, we are still very early on in Teligent's
development. But 2Q 1999 results are encouraging in terms of network
growth and customer adoption of Teligent's core services. We are
maintaining our STRONG BUY rating as we reevaluate the market
opportunity for Teligent (and other players) in the explosive data
segment. We would recommend buying into any weakness in TGNT shares,
relative to our "voice centric" DCF-derived price objective of
$62/share.
DETAILS:
Teligent reported strong 2Q 1999 results last night (11-Aug) after the
market's close. This is the first quarter in which real meaning can be
derived from some of the operating metrics for Teligent, which we believe
point to the continued deployment of network into which to sell the
Company's services.
2Q 1999 OPERATING HIGHLIGHTS
Metric 2Q99E 2Q99A 1Q99A
Access Lines 25,000 37,526 17,579
Subscribers 4,500 3,534 2,500
Roof Rights 3,700 4,252 3,100
Buildings On-Net 1,100 1,520 800
Markets 28 28 20
Source: Company documents, Deutsche Banc Alex. Brown estimates.
Our YE1999 objectives have increased in several key areas. Teligent now
expects to have access rights to 6,000 buildings by year end (up from 5,000
previously), of which we expect at least 2,500 to be on-net (we should
clarify the definition of on-net, which may or may not mean wireless, but
does refer to Teligent-owned facilities). As of 2Q 1999, the Company had
approximately 1,520 buildings on-net, approximately half of which were
served by wireless facilities. Of the 737 served by wireless facilities,
approximately 75% (or about 550) were point-to-multipoint (PMP) technology,
with the remaining 25% therefore on point-to-point (PP) technology.
Network Deployment 2Q 1999A 4Q 1999 Est.
Buildings On-Net 1,520 2,500
Wireline Buildings 780 NE
Wireless Buildings 737 NE
PMP Buildings 553 est. NE
PP Buildings 184 est. NE
NE = no estimate.
Source: Company documents, Deutsche Banc Alex. Brown estimates.
One hundred percent of Teligent's 15,500 local access lines are on net.
The remaining 26,000 lines are split between voice and data, with we
believe the majority today being LD lines. Recall that signing up a LD
customer is a easy as "flipping a switch," whereas cutting RBOC customers
over to CLEC facilities is more time consuming. We view the 15,000 -
20,000 LD lines at Teligent as a backlog or bank of future local and/or
data customers, who today are simply waiting for a radio to be installed, a
hub site to achieve line of sight, or some other "temporary" impediment.
Nevertheless, Teligent derived 65% of its revenue from LD services in 2Q
1999, up from 60% in 1Q, which is not a trend wee would like (or expect) to
see a local phone company continue. As Teligent gets more network
deployed, we would certainly expect to see the ratio of local-to-total
revenue improving.
NEW SERVICES UNDER DEVELOPMENT
Teligent announced a DSL service on its first quarter conference call aimed
at small businesses craving low-cost, high speed Internet access.
Essentially, the "SmartWave DSL services uses oversold wireless links to
offer affordable, yet high speed, Internet access. After just about 1
month, Teligent has rolled services out in 27 markets with 388 in-building
DSLAMs on the network and 85 customers. Of course, the service is 100% on
net.
This quarter, in keeping with the data theme, Teligent announced the
development of its own "IP platform" to bring ISP services in-house and
reap the incremental margin of facilities based services. While we would
not expect to see top line growth accelerate directly as a result of this
service, we would expect the long-term margins to improve. Management gave
four reasons for getting into the facilities-based ISP game.
1) Cost. Most important reason. Saves maybe $75M-$100M over 5 years.
2) Network Control. Smoother installation/maintenance leads to better
service.
3) Synergy. Between the voice and data networks for backhaul, etc.
4) Flexibility. As a backbone provider can roll out new applications.
The impact from this service has not been quantified yet, but stay tuned
here.
NET-NET
Make no mistake, we are still very early on in Teligent's development. But
2Q 1999 results are encouraging in terms of network growth and customer
adoption of Teligent's core services. We are maintaining our STRONG BUY
rating as we reevaluate the market opportunity for Teligent (and other
players) in the explosive data segment. We would recommend buying into any
weakness in TGNT shares, relative to our "voice centric" DCF-derived price
objective of $62/share.
|
