Friday, January 28

The creation of value resists Telefónica


Telefónica’s management has spent months, if not years, arguing that the company is worth more than the 23,197 million euros of capitalization that the market gives it.

To try to boost the company’s share, light years away from the highs of 2000 (at 22.97 euros), and in turn reduce debt levels, its managers have been implementing a divestment policy for some time.

However, with the shares trading above 4 euros (significantly below the 6.5 euros that it marked before the coronavirus crisis), it does not seem that this strategy is having much effect.

Telefónica closes operations in Colombia and El Salvador

We have seen one more example of this this past week, with the confirmation of sales operations in the subsidiaries of El Salvador and Colombia, which have gone practically unnoticed by investors.

The most recent has been the closing of the sale of Telefónica Móviles El Salvador after receiving the pertinent regulatory approval, this Thursday.

Finally, the operation has been completed in terms similar to those of the preliminary agreement reached in October 2021, by which Telefónica sells 99.3 percent of its mobile subsidiary in El Salvador to General International Telecom for 139 million dollars (about 121 million euros, equivalent to 7 times the EBITDA of 2020).

One of the few modifications affects the syndicated financing contract, which has been changed to adopt sustainability criteria and is made up of a single tranche of 5,500 million for a term of 5 years and with two annual extension options at the request of Telefónica, up to a maximum of 7 years.

Pyrrhic rises of Telefónica in a bag

After hearing the news, Telefónica closed the last sessions with uploaded testimonials.

In fact, analysts were clear that the novelty was going to affect the evolution of the company on the stock market to a small extent.

We do not expect an impact on the price. With the regulatory approval of the sale of El Salvador, Telefónica disposes of its holdings in all the Central American countries to which it had exposure (El Salvador, Costa Rica, Panama, Guatemala and Nicaragua)”, pointed out the Renta 4 analysts.

“Positive news but known. The operation is part of the group’s active asset management policy to bring out value, obtain liquidity and partners to face investments in 5G and give visibility to businesses with higher multiples. With a net financial debt of 25,000 million euros, this operation has a reduced financial impact”, added Elena Fernández-Trapiella, an analyst at Bankinter.

Operations already known by Telefónica investors

The same thing happened with the operation announced in the middle of the week to sell 60 percent of its fiber optic subsidiary in Colombia to the American venture capital giant KKR for 200 million dollars (about 180 million euros), according to the statement sent by the company to the CNMV this Wednesday.

Although the truth is that the operation is not new, since it had been announced on July 17 and is now closed after the approval of the regulatory authorities.

In any case, the truth is that Telefónica has not started the year all badly, because in these two weeks that we have been in 2022 it climbs 4 percent on the stock market.

Although, analysts are not entirely clear about its future on the stock market. 45.7 percent of them (16 analysts) recommend buying the stock; while 40 percent (10 experts) prefer to hold and 14.3 percent (5 specialists) would choose to sell.

As for the target price, they set it at 4.59 euros for twelve months compared to the current 4.0 euros, which implies a potential of 13.9 percent.



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