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
EU Telecoms: The calm before the storm
Communications
New Street expects to see an uptick in M&A activity this year after a lull in 2024. Some of the larger transactions are likely to be potential attempts at further 4-3 deals following the successful approvals in Spain and the UK. Key markets where this could happen are Germany, Italy, France, Sweden and Denmark. From an investor perspective, the best way to play this theme would be through Telefonica, 1&1, Telecom Italia, Altice France bonds or Bouygues. Away from potential 4-3 mergers, other fiber deals could still be a further theme in Europe in 2025, and again Telecom Italia comes into focus as a beneficiary of a potential NetCo-OpenFiber transaction.
Edition: 202
- 10 January, 2025
Telecommunications
Telecom Italia Q1 24: First positive service revenue growth in 7 years - for shareholders willing to look across the divide to the post-NetCo world, New Street see an attractive story emerging, with a number of potential catalysts to help further deleveraging. Q1 saw 11% YoY EBITDA growth, with TI guiding 2-3% revenue and 9-10% EBITDA growth for 2024. Improvements are driven by higher ARPU in wireline and better wholesale mobile revenues, despite challenges in the broadband market where Open Fiber is gaining subscribers. Mobile service revenue growth turned positive for the first time since 2018, though subscriber losses persist. The NetCo sale to KKR is likely, shifting focus to ServCo’s growth. Several catalysts, including potential asset sales and debt reductions, could enhance ServCo's appeal and improve Telecom Italia's valuation.
Edition: 188
- 14 June, 2024