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
Communications
New Street recently published two thematic notes looking at Sub-Saharan African telecoms companies. They focused on the potential for market structures and revenues to improve, and especially after periods of currency weakness (which has been notable in Egypt and Turkey). In this note, they go through the consequences of this for VOD and refresh their investment thesis as they believe the upside from the non-European assets could be overlooked by consensus (and talking of non-EU assets, this is New Street’s first VOD report where they highlight the hidden value that might be in satellites as well). TP £1.40 (90% upside).
Edition: 193
- 23 August, 2024
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
Communications
Selling Italy to rebrand as Vodakom?! With the sale of Spain and now the announced provisional sale of Vodafone Italy for €8bn, the profile of the group changes dramatically and it increasingly just becomes a German company instead. This might be a sector-wide missed opportunity at 4:3 consolidation, but given the sale price of Italy is above the value in New Street’s 140p target, they are left scratching their heads on the muted share price reaction, since VOD’s implied EU business is now trading on just 3.1x EBITDA and one-time cash returns are likely on the way. The prospect of being a takeover target looms ever larger.
Edition: 181
- 08 March, 2024
Etisalat (EAND UH) United Arab Emirates
Communications
Over the last couple of years, Etisalat has seen its share price erase nearly all the gains made following an impressive surge in 2021, but does the sell-off provide an opportunity for investors? AlphaMena doesn’t think so. Global inflationary pressures with double-digit inflation rates in Egypt and Pakistan are hampering the group’s revenue and margins. Peer valuation methods are also still bearish. The stock trades at 7.4x 2024 EV/EBITDA and 16.6x P/E (vs. 5.9x and 13.2x for its MENA peers). AlphaMena prefers to bet on more attractive telecom operators, which offer higher dividend yields (Zain, Vodafone Qatar and STC), especially in times of uncertainty.
Edition: 176
- 22 December, 2023
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
Implications from German TV / FTTH changes
Communications
New Street looks at the impact of the Telecoms Law on German apartment buildings - a market of 21m premises - one of the largest “single” markets in Europe. Specifically, they focus on 1) the impact of the break-up of the bulk contracting for TV, 2) the way FTTH could be deployed to these buildings, 3) how in-home wiring could be shared to reduce capex costs. The battle for ultra-fast broadband access into these premises is just beginning. Relevant stocks include Vodafone and Deutsche Telekom, while New Street believes Tele Columbus could be one of the most interesting high-yield names in Europe.
Edition: 160
- 12 May, 2023
Communications
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).
Edition: 155
- 03 March, 2023
UK Fund Positioning Analysis
Steven Holden looks at Energy allocations among UK active funds, highlighting a rotation back into the sector. So far, it is confined to a few select investors, with the majority still underweight and Growth funds missing from the picture. He also examines holdings in UK Airlines as allocations and ownership falls to all-time lows, whilst Apparel & Footwear soars to new highs. In the final part of his report, Steven focuses on the continued selling of shares in Vodafone (led by Growth managers, whilst Value investors are not stepping in) - with such a positioning overhang, more selling appears the most likely outcome.
Edition: 149
- 25 November, 2022
Communications
Announces its long-awaited Vantage Towers transaction - selling down 32-50% of its stake for cash at 24x EBITDA, or €32/share, a 33% premium to the 2021 IPO price. New Street analysts see this deal as transformational for VOD’s balance sheet with the potential to take leverage below 2.5x for the first time since 2019 and this should open the door to having excess capital for potential distribution. In this note, they run through the full balance sheet implications for VOD and the read across for other EU tower names. TP £1.75 (65% upside).
Edition: 148
- 11 November, 2022
Communications
Has been linked to numerous potential M&A deals and New Street’s latest piece shows that sensible assumptions could allow for a significant €47bn value unlocking if management is willing to execute. In turn, this could allow considerable cash returns through buybacks and incremental dividends and valuing the stock on a sector multiple could lead to values as high as 240p/share, more than double the current price. These deals could all act as catalysts but in the near-term, the Hungary disposal and a sell-down of Vantage Towers could take leverage below 2.2x (below management’s 2.5x threshold) and be the start of incremental cash returns.
Edition: 143
- 02 September, 2022