EM Telcos: When does digital drive a re-rating?
Communications
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).
Edition: 223
- 31 October, 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
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
Saudi Telecom (STC AB) Saudi Arabia
Communications
Amid a still-challenging macroeconomic context, STC continues to show strong resilience. The group recorded its highest semi-annual revenues ever in 1H23 at SAR36.506bn (+8.2%). The bottom line also appreciated by 4.2% at SAR6.117bn. STC preserves a generous dividend policy with an attractive regular dividend and high payout ratio which reflects the group’s sound financial position and solid cash flow. STC is a quality stock with a robust business model backed by the company’s leading position in Saudi Arabia, its solid fundamentals and steady investment programme. The group’s recent external growth strategy (e.g., the 9.9% stake acquisition in Telefonica) also provides a positive outlook and will improve shareholder returns in the long run.
Edition: 169
- 15 September, 2023
Telcos: Ignore the negative sentiment
Communications
The overall picture for European telcos in 1Q23 was actually pretty good, according to analysts at New Street - service revenue trends remained at their highs and were stable at +0.9% y/y; EBITDA remained positive, and given the phasing of energy and wage drags, and given that price increases are yet to kick-in in earnest, New Street expects trends to improve in the latter part of this year. They would single out Telenor as a key Buy recommendation with Norway as one of the fastest growing markets and are also encouraged to see Spanish service revenue growth turning positive for the first time since 4Q19 which is supportive of their Buy recommendation on Telefonica.
Edition: 163
- 23 June, 2023
ESG boosts European Telcos performance
Russell Waller wasn’t sure what to expect when researching the financial merits of ESG investing in the Telecoms sector, but in his latest report he found clear evidence of better TSR for Telco ESG leaders, that those with better Governance (no Government ownership) outperformed, and that ESG can help companies in the sector have lower borrowing costs. Russell shows how the stocks stack up on a variety of ESG ratings and identifies which ones should do well from the next wave of ESG money. His “Climate Champions” include Deutsche Telecom, Telefonica and KPN.
Edition: 124
- 26 November, 2021