ML on TGNT:
Institutional Ownership-Spectrum: 30.5%
Brokers Covering (First Call): 8
ML Industry Weightings & Ratings**
Strategy; Weighting Rel. to Mkt.:
Income: Overweight (07-Mar-1995)
Growth: In Line (28-Jan-1999)
Income & Growth: Overweight (07-Mar-1995)
Capital Appreciation: Overweight (04-Dec-1998)
Market Analysis; Technical Rating: Average (27-Jul-1998)
**The views expressed are those of the macro department and do not
necessarily coincide with those of the Fundamental analyst.
For full investment opinion definitions, see footnotes.
Investment Highlights:
· After the market close on March 1, TGNT
released 4Q98 results highlighting the excellent
progress made on the commercial deployment of
the co's wireless broadband local network.
· We reiterate our intermediate-term Accumulate
and long-term Buy opinions, as well as our 12-18
month private market DCF-based price
objective on TGNT of $48 or 26% upside.
Fundamental Highlights:
· 4Q revenue reached $479,000, up 100%
sequentially and 20% above our forecast of
$400,000. For the first time, 4Q revs included
benefit from the commercial rollout of both local
and LD voice services. Quarterly EBITDA loss
equaled $77.6M, a $20.8M widening vs. 3Q and
$800,000 above our loss expectation of $76.8M.
· Since Jan. 1, TGNT has launched commercial
service in 9 new markets. Total markets in
commercial service now total 24 and TGNT
seems on track to meet our expectation of
communication services in 40 markets by YE99.
· Consistent with our '99 forecasts, management
outlined goals for '99 including: a) revenue of
$35M; b) EBITDA loss totaling $350M; c) 40
markets in commercial service; and, d) cap exp
totaling $300M.
Teligent reported 4Q98 results after the market close
on March 1. The 4Q98 release highlighted the
continued excellent progress the company has made on
the commercial deployment of its wireless broadband
local network. Teligent remains one of our favorite
CLEC (competitive local exchange carrier) stocks, along
with RCN (RCNC, $24, D-2-1-9) and NEXTLINK
(NXLK, $49 1/2, D-2-1-9). We reiterate our 12-18 month
private market DCF-based price objective on Teligent of
$48 or 26% upside. Our $48 price objective is based upon
our 10-year DCF model, a 15% discount rate, a 9.0x
multiple on terminal year EBITDA, and no public market
discount.
We remain very bullish on Teligent given that its wireless
local networks provide the following four advantages: 1)
the ability to economically offer facilities-based service to
an entire metropolitan area vs. the coverage constraints of
fiber-based networks; 2) access to a $12B addressable
local business market at present which we estimate will
grow to approx. $45B by '08; 3) quicker, lower cost
network deployment vs. fiber; and, 4) broadband capacity
for high speed data and internet services. In addition,
Teligent enjoys one of the strongest funding positions in
the CLEC sector with approx. $1.2Bn of available capital
at YE ‘99 ($416M of cash and $800M available under a
bank credit facility), sufficient to fund the company's
activities through YE ‘00.
Highlights of the 4Q98 results were as follows:
Revenue: Teligent reported quarterly revenue of
$479,000, up 100% sequentially and 20% above our
forecast of $400,000. Quarterly revenues included, for the
first time, benefit from the commercial rollout of voice
services -- both local and long distance.
EBITDA: Reported 4Q EBITDA loss was $77.6M, a
$20.8M widening vs. 3Q and $800,000 above our loss
expectation of $76.8M. 4Q expenses included: a) cost of
goods sold of $30.6M, up 21.4% sequentially due to
increased utilization of leased local transport facilities and
growth in resold long distance minutes; and b) SG&A of
$47.5M, up 43.5% sequentially with the majority of the
increase attributable to advertising expense and headcount
increases associated with the rollout of commercial service
in new markets. Reported 4Q net loss was $105M, in line
with our forecast.
Capital Expenditures: Cap exp for the quarter totaled
$72M, $2M or 3% above our forecast.
Nine Additional Markets Added So far in ‘99: Since
January 1, Teligent has launched commercial service in
nine additional markets: Atlanta, Boston, Philadelphia,
Baltimore, Milwaukee, Richmond, Wilmington, Del., West
Palm Beach and New Orleans. Total markets in
commercial service now total 24 and the company appears
on track to meet our expectation of 40 markets with
commercial service by year end '99.
Roof Right Acquisition: Key to its ability to serve
commercial customers, Teligent currently has leases or
lease options secured for roof access to 2,400 potential
customer buildings, up 50% from 1,600 in 3Q.
Rapid Sales force Deployment: To date, Teligent has
1,477 employees, an increase of 23% over 3Q levels.
Teligent sales force currently numbers 200, a 33% increase
from 3Q and above our expectation of 170. We estimate
that this will grow to 250 by YE ‘99 and further ramp up to
4-500 by YE ‘00.
Regulatory Update: At year end, Teligent had received
CLEC authority covering all of its 74 planned markets.
This was an increase of 4 additional markets over the 70
markets in which Teligent had CLEC authority at the end
of 3Q. In addition, Teligent now has local interconnection
agreements with other ILECs (incumbent local exchange
carriers) covering 72 of its 74 planned markets.
Outlook for ‘99: In the press release discussing the
quarterly results, management announced a number of
financial goals for '99 including: a) revenue of $35M; b)
EBITDA loss totaling $350M; c) 40 markets in
commercial service; and, d) cap exp totaling $300M. We
note that these goals are consistent with our recently
revised (January 27) forecast for '99: a) revenues of $36M;
b) EBITDA loss of $348M, c) cap ex of $300M. |
