Communications

Report by New Street Research

European telecom stocks have outperformed YTD, adding to 2024’s gains and validating New Street’s long-term thesis of regulatory improvement. However, with sector upside narrowing to 17% (vs. 31% at the start of the year), returns are likely to become more stock-specific and increasingly dependent on M&A. They highlight French names and Telecom Italia as most geared to deal-making. New Street’s top picks are BT (strong FCF growth); DT (German and US upside); Bouygues (undervalued FCF growth and M&A upside); and Vodafone (special sit. with value to be unlocked). They also recently upgraded Telia to Buy seeing good cost control and the possibility for extraordinary cash returns.

Communications

Report by New Street Research

Service revenue growth remains at record highs (+2.2% Y/Y in Q4, the highest growth rate the sector has achieved over the last 10+ years) and for the first time all markets have positive growth (between +1-5% Y/Y). EBITDA growth also improved, while capex appears to have peaked. OpFCF was +17.5% Y/Y in Q4 and +5.2% for the full year. This was the second quarter in a row of ROCE growth (it is now back above 8% for the first time in 2 years). New Street strongly believes the good service revenue growth will filter through to permanently better FCF and higher ROCE thanks to the improving regulatory environment. Their current top picks are BT, DT, Orange, Telenor, Telia and Vodafone.

Communications

Report by New Street Research

After many years of headwinds, New Street is bullish on the outlook for the European telecoms sector as we head into 2024, with a continued reduction in risk perception helping to support a multiple re-rating driven by the following themes: 1) Ongoing regulatory tailwinds, 2) Declining energy costs, 3) Capex going past its peak driving above inflation OpFCF growth, 4) Copper shutdown, 5) Further sector consolidation. Their top picks are BT, Deutsche Telekom, Telefonica, Telenor, Telia and Vodafone.