Communications

Report by New Street Research

New Street remains positive on Sub-Saharan African telecom operators following a solid Q2, with sector service revenue and EBITDA still growing more than 20% and 30% Y/Y in dollar terms despite some slowdown in Nigeria. Airtel Africa led on top-line growth, while MTN outperformed on EBITDA and operating free cash flow. Higher oil prices are emerging as a near-term margin headwind and should become more visible in H2, but New Street expects the impact to be less severe than after the Ukraine shock given improved market structures and greater pricing power. They also see Starlink as a limited competitive threat in Africa, with fixed wireless access better suited to the region. Valuations remain attractive relative to the growth opportunity, with AAF, Vodacom and MTN all featuring in New Street's GEM Top-10 picks.

Communications

Report by New Street Research

New Street examines when EM Telcos transition from being “Telcos with digital assets” to “Digital-first” companies and when the market begins to re-rate them accordingly. Their analysis of Safaricom and SoftBank Corp suggests that valuation multiples expand once digital revenues reach 15-20% of total sales. New St flags VEON, MTN, Airtel Africa, Vodacom, Kyivstar and Telefonica Brasil as EM operators now approaching this threshold. Digital businesses typically command higher growth, superior ROIC and lower regulatory risk, supporting a valuation premium. Reflecting this view, New Street upgrades their price targets for VEON ($100), Kyivstar ($16.4), Vivo (R$43), AAF (GBP 380), Vodacom (ZAR 200), Safaricom (KES 32) and MTN (ZAR 245).

Communications

Report by New Street Research

New Street expects many markets to consolidate further to just two operators, and in smaller, poorer countries, possibly a single network. Consolidation underpins much of the sector's improvement - most notably through reduced capex, as seen in Brazil, where industry capex dropped from $7bn to $4bn. Countries where further consolidation is likely include Colombia, Peru, Chile, Malaysia and many in sub-Saharan Africa. Key beneficiaries include Millicom, Airtel Africa, MTN, VEON and Entel. EM Telcos remain substantially undervalued on double digit equity FCF yields. Top regional picks include Singtel and KT (Asia), IHS Towers and Vodacom (Africa), and Liberty Latin America and TIM Brasil (LatAm).

Communications

Report by New Street Research

New Street’s thesis is that the EM Telco industry has entered an upswing, with ROIC rising and real revenue growth for the better managed companies in good markets. However, investor interest levels in the space remains low, with few long only funds retaining specialist Telco analysts. This creates a good opportunity to generate alpha as many of these stocks trade on very high equity FCF yields. As a result, they are introducing the GEM-Top 8, to point investors towards those companies set to deliver outsized returns in the next 1-2 years. Stocks featured include VEON (TP $65), Airtel Africa (TP £2.00), Singtel (TP S$4.60) and Vodacom (TP ZAR150).

Communications

Report by Arete Research

With Liberty Global recently taking a 4.9% stake in its rival, it means there are now three major shareholders on VOD’s register who might be interested in acquiring assets. With the next CEO likely to be given a mandate to radically simplify the business, Alex Pound examines the impact of several deals that could be made include selling Vodacom to e& and reopening discussions with Iliad to sell Italy, with VOD aiming to slim down to an EU footprint spanning 6-8 geographies. His transaction-boosted fair value is 159p (~60% upside).