Telcos: More selective stock picking required
Communications
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.
Edition: 216
- 25 July, 2025
Telcos: Q4 first time ever all EU markets are in positive growth
Communications
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.
Edition: 184
- 19 April, 2024
Telecoms: Happier times ahead
Communications
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.
Edition: 176
- 22 December, 2023
Communications
BT shares are beaten-up and unloved, yet Openreach is making rapid progress on high-return fibre capex, while alt.net rivals are facing uncertain financing, reducing long-term overbuild. BT looks likely to grow revenue, EBITDA and to improve FCF materially as FTTP capex moderates as the build slows post FY26E. Meanwhile, a potential Labour Government looks business-friendly and needs FTTP built; regulatory intervention impacting BT's fibre returns would seem self-defeating. Looking to the mid-term (FY28E), BT shares are implied at only 5x FCF or 7x EV/opFCF. For a business with duration where fibre infrastructure is at the core of the business, this seems remarkably cheap. TP 228p (~90% upside).
Edition: 171
- 13 October, 2023
Altice: Why a BT takeover could help to solve debt issues
Communications
New Street explores the left-field idea that launching a full takeover of BT could actually help Drahi to increase his liquidity as one option to help support the deleveraging of Altice France by over 1x. They believe that legitimate concerns that Drahi could be a forced seller of his BT shares are acting as an overhang on the stock. While New Street aren’t in any way downplaying the strong opposition and complexity surrounding an offer for BT, they think the maths could just work, so there is the potential that Drahi could surprise the market and attempt to launch a full offer when his current 6-month standstill agreement expires in Nov, as it could raise c.£2.5-3.5bn of additional liquidity.
Edition: 170
- 29 September, 2023
Telecommunications
UK assets are clearly out of favour, but it is at such a time when investors should be looking for opportunities. New Street believe that BT's share price could double from here on just 3.8x EBITDA, and with massive upside to consensus as Openreach’s pricing structure should support inflationary pricing; and with a longer-term hedge against rising rates from a higher allowed ROCE, this share price represents an opportune time to revisit the name.
Edition: 145
- 30 September, 2022
Inflation in European Telecoms
Communications
Can prices be lifted to offset rising costs? Some operators have a legally defined right in customer contracts to lift price in line with inflation - whether they actually will lift will come down to local competitive dynamics and consumer attitudes to rising prices. New Street’s proprietary consumer survey results suggest that companies need to think very carefully about lifting price, as attitudes have shifted toward being more price conscious, even for the incumbents. New Street thinks owning BT, Tele2 and KPN are the best ways to insulate against rising costs.
Edition: 132
- 01 April, 2022
UK Alternative Network Providers
Communications
Further signs of an over-heated sub-sector - Axione (the French fibre JV between Bouygues and Mirova) has announced plans to build FTTP to 4m premises in the UK in sub-urban and rural areas. New Street believes the company is entering an increasingly crowded UK FTTP market (estimates there is already c.15% overlap among the altnets today); argues the economics looks very challenging and consolidation among the players is long overdue if they are ever going to improve their returns and stop competing against each other, as well as Virgin and BT.
Edition: 118
- 03 September, 2021
Transgene (TNG FP) France
Healthcare
With BT-001 advancing into phase I trials, TNG now has four oncology assets in clinical development and multiple important catalysts in the coming 12 months. TG4001 has started phase II, TG6002 reported first positive human data in April with a further readout in Q4 and most importantly, TG4050 is expected to report an immunological readout in Q4 which could demonstrate proof-of-concept for the technology. The company has financial runway to the end of FY23. Intron’s SOTP values TNG at €3.20/share (40% upside).
Edition: 117
- 20 August, 2021