Monday, November 29

Telefónica’s seized share: from 9.3 to 3.8 euros in 6 years

This article is part of the 15-page special included in the issue of the magazine Inversión entitled How can Telefónica grow?. Given the wide impact of the edition, exceptionally reproduces a part of it ● The consensus of the analysts says that Telefónica deserves to quote above the 3.9 euros that it currently marks. Specifically, it gives you a price target of 4.62 euros, with a potential of 17 percent from current levels. But let’s not go crazy.

It is not that the company has become the new darling of the market, after the 21 percent revaluation that it has experienced this year. Rather, it is at levels that could be considered attractive, still a long way from the prices it was playing before the Covid-19 crisis.

Iván San Félix, an analyst for Renta 4, is on the side of the experts, among whom Telefónica has a considerable position: «I think it is worth much more. And that is seen every time it makes a corporate operation, where it sells at more expensive multiples of what it is quoted, “he says.

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Andrés Bolumburu, from Banco Sabadell, is also placed in this group, having the company with a price target of 5.9 euros. In his case, he believes that the action could take off once the uncertainty of the auction of the rights of the football league is cleared, key to his strategy of retention of the ‘prime’ subscribers.

Juan Peña, from GVC Gaesco, shares this analysis: «Telefónica at these prices is an interesting company. I do not see it badly in the short and medium term ».

In fact, Peña believes that the Spanish is among the European telecos with the greatest potential right now. As he explains, most of the former state telecommunications monopolies share the same problems (high competition and leverage, coupled with the fact that they operate in a sector with growth problems and high investment needs to maintain the network).

Although, unlike Telefónica, the rest are listed at less attractive prices. Only Deutsche Telecom has a more buoyant business (due to its exposure to the United States, a market where there is less competition than in Europe), but the German company’s listing has already priced in the potential of the US subsidiary.

Although, Peña acknowledges that Telefónica is a company that has always caused shareholders a lot of displeasure because, even when things seem to be going well, in the end some unforeseen event arises that detracts from the results: an accounting deterioration in Latin America or a rise in the energy costs in Spain, as happened last time.

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The analysis of the magazine Inversión on Telefónica extends through the Focus section: in 15 pages readers find all the keys that answer the question: How can Telefónica grow? (image: Inversión magazine).

For this reason, it is difficult to defend a buy recommendation against investors who have previously heard the argument that Telefónica should be worth more on the stock market and that, however, they have seen it only fall. Retailers basically can’t believe those promises of future growth coming from the top of the company.

Some professionals are also on the side of investors who would hardly invest in Telefónica right now. “They seem to me to be very attractive valuations but they also seemed so to me a decade ago. It was the cheapest then, but with the passage of time, it is still cheaper ”.

Can it make sense at this point in the market? Yes, because valuation can sustain you in volatile environments but, in the long term, I prefer other options.

“The technology does not stop advancing and the telecos have to make very high investments to adapt the networks and, nevertheless, they cannot take that investment at prices because there is a lot of competition. On the other hand, the new operators have much lighter structures and can offer cheaper prices ”, says Celso Otero, manager of Renta 4, who assures that he does not have any company in the sector in his portfolio.

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On the contrary, he prefers to invest in technology that is benefiting from the digitization of the economy. «Other technology companies are growing in double digits, but the telecos have been like the ugly duckling. They have more attractive valuations and they generate a lot of cash, but the main fear is that the business may continue to drip down at the top of the income statement and that will end up being transmitted to the rest of the parties. It costs to invest in them.

Brun insists on this line: «They offer a commoditized service, Internet access, with which the user will always ask for the latest technology. You will have to invest to keep the same clients. Investment Capex to stay in the same place ».

José Ramón Ocina, from Mirabaud Securities in Spain, also has many qualms: “It will be difficult for him to recover the levels prior to Covid-19 in the medium term. We were above 5 euros, which means recovering almost a third of the level lost when, after the presentation of last week’s results, nothing invites us to think that it will recover the volume of business or the previous generation of cash “.

Ocina refers specifically to the deterioration of the business in Spain, “which does not look like it is going to turn around.” “Until a change in trend is observed, the stock will probably continue to do it wrong,” he says.

● The magazine Inversión is now available in the best newsstands in Spain, in El Corte Inglés, in Kiosk and More and in the web.

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