European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

Telxius, a subsidiary of <a href="https://www.smartkarma.com/entities/telefonica-sa" target="_blank" data-smartkarma-citation="entities:21299:1" rel="noopener">Telefonica SA (TEF SM)</a> (50% Telefonica, 40% KKR, 10% Pontegadea) reached an agreement with Boston-based <a href="https://www.smartkarma.com/entities/american-tower-corp" target="_blank" data-smartkarma-citation="entities:6365:1" rel="noopener">American Tower (AMT US)</a> to sell its entire tower unit (30,722 sites across Argentina, Brazil, Chile, Germany, Peru and Spain).
<ul>
<li>The EV is €7.7 bn including the remaining payments to be done by Telxius to <a href="https://www.smartkarma.com/entities/telefonica-deutschland-holding" target="_blank" data-smartkarma-citation="entities:21687:1" rel="noopener">Telefonica Deutschland Holding (O2D GR)</a> to complete the German transaction.</li>
<li>The price is 30.x EBITDA, above the usual 23x.</li>
<li>Telefónica will reduce its debt by €4.6 bn, 12.5% of the total.</li>
<li>Debt reduction and pending corporate operations provide the group with sufficient liquidity to maintain its commitment to shareholders for the time being.</li>
</ul>
In the current context, Telefonica focuses on the management of FCF to preserve the payment of the dividend, by reducing investments. The dividend remains at €0.4 per share and debt, one of the group's main drawbacks, fell c.15% LTM. In the long term, the potential for structural growth is low, competition high, and room to maneuver limited. The current environment makes it difficult to sell non-strategic assets at adequate prices and questions the sustainability of the dividend.
<h3>Recommendation</h3>
Telefonica: DCF valuation is €4.2 (Capital IQ consensus, WACC 6.4%, g 0.3%).
<ul>
<li>The sale of Telxius may support market expectations for a potential acceleration in the execution of the strategic reshuffle announced by management, thus leading to a re-rating of the company.</li>
<li>But there are risks: slower deleverage, lower economic growth in Spain (24% of EBITDA), macro deterioration and currency depreciations in Central and South America (c. 15% of EBITDA). Positive surprises may come from further disposals at high multiples thus leading to faster deleverage, better than expected economic growth in Central and South America and a reduction of the (so far unsustainable) dividend.</li>
</ul>
Cellnex, reiterate TP of €64.36. Cellnex could become the object of a take-over.

Telxius, a subsidiary of Telefonica SA (TEF SM) (50% Telefonica, 40% KKR, 10% Pontegadea) reached an agreement with Boston-based American Tower (AMT US) to sell its entire tower unit (30,722 sites across Argentina, Brazil, Chile, Germany, Peru and Spain).

The EV is €7.7 bn including the remaining payments to be done by Telxius to Telefonica Deutschland Holding (O2D GR) to complete the German transaction.
The price is 30.x EBITDA, above the usual 23x.
Telefónica will reduce its debt by €4.6 bn, 12.5% of the total.
Debt reduction and pending corporate operations provide the group with sufficient liquidity to maintain its commitment to shareholders for the time being.

In the current context, Telefonica focuses on the management of FCF to preserve the payment of the dividend, by reducing investments. The dividend remains at €0.4 per share and debt, one of the group's main drawbacks, fell c.15% LTM. In the long term, the potential for structural growth is low, competition high, and room to maneuver limited. The current environment makes it difficult to sell non-strategic assets at adequate prices and questions the sustainability of the dividend.
Recommendation
Telefonica: DCF valuation is €4.2 (Capital IQ consensus, WACC 6.4%, g 0.3%).

The sale of Telxius may support market expectations for a potential acceleration in the execution of the strategic reshuffle announced by management, thus leading to a re-rating of the company.
But there are risks: slower deleverage, lower economic growth in Spain (24% of EBITDA), macro deterioration and currency depreciations in Central and South America (c. 15% of EBITDA). Positive surprises may come from further disposals at high multiples thus leading to faster deleverage, better than expected economic growth in Central and South America and a reduction of the (so far unsustainable) dividend.

Cellnex, reiterate TP of €64.36. Cellnex could become the object of a take-over.

Equity Analyst, Event-driven, Quiddity Advisors

Janaghan Jeyakumar, CFA

Equity Analyst, Event-driven

Quiddity Advisors

Pan-Asia Catalysts/Events

A trio of PE funds - KKR, Cinven, and Providence - have launched a takeover bid to acquire a majority stake in Spanish telecom operator MásMóvil Ibercom, S.A. If the Deal goes through, all three PE firms will hold an equal stake in the company. The Offer Price is EUR22.50/share valuing the company at a market cap of ~EUR3.0bn and an enterprise value of EUR 5.011bn.Providence is currently the second-largest shareholder with (9.16%) and including them, shareholders collectively holding 29.56% have agreed to sell. However, the Deal has a minimum acceptance condition of 50% and MásMóvil's shares are currently trading above terms at EUR23.18. In this insight, we take a look at the fundamentals to see if a bump/overbid is justified.

A trio of PE funds - KKR, Cinven, and Providence - have launched a takeover bid to acquire a majority stake in Spanish telecom operator MásMóvil Ibercom, S.A. If the Deal goes through, all three PE firms will hold an equal stake in the company. The Offer Price is EUR22.50/share valuing the company at a market cap of ~EUR3.0bn and an enterprise value of EUR 5.011bn.Providence is currently the second-largest shareholder with (9.16%) and including them, shareholders collectively holding 29.56% have agreed to sell. However, the Deal has a minimum acceptance condition of 50% and MásMóvil's shares are currently trading above terms at EUR23.18. In this insight, we take a look at the fundamentals to see if a bump/overbid is justified. 

Masmovil: Target Shareholders Looking for a Bump

Differentiated global TMT & Internet Research

New Street Research Insights

New Street Research

Research is provided by our team of experienced analysts. Our work is idea driven, based on independence of thought, sector expertise, and firmly focused on fundamentals and valuation of telecoms and internet names globally. New Street is headquartered in London with offices in New York, Singapore and Australia. 

New Street Research is an independent, partner-owned, research firm specialising in equity and debt research. Our equity research embraces the following sectors:

Pan European Telecom Services and Cable
US Telecoms, Cable, Satellite and Towers
Global Emerging Market Telecoms
Japan Telecoms
Asian Internet
Pan European Healthcare
US Healthcare
Japanese Healthcare

We also provide debt research on:
Pan European Telecom Services and Cable

Thematic (Sector/Industry)

New Street Research attended this year's Mobile World Congress in Barcelona recently. While the move to 5G will bring huge increases in localized wireless capacity, the transition around 2020 to 5G looks increasingly likely to be smooth for many operators, with little impact on capex or revenue trajectories. 5G does not change the key economics of network densification. Where these are good, 5G will thrive. Where they are poor, 5G deployment will be slower. Only in markets with strong asymmetry…

New Street Research attended this year's Mobile World Congress in Barcelona recently. While the move to 5G will bring huge increases in localized wireless capacity, the transition around 2020 to 5G looks increasingly likely to be smooth for many operators, with little impact on capex or revenue trajectories. 5G does not change the key economics of network densification. Where these are good, 5G will thrive. Where they are poor, 5G deployment will be slower. Only in markets with strong asymmetry…

Report from Mobile World Congress: The Transition to 5G Comes into Focus.

With markets trying to make sense of the election of President Trump, we have looked at the implications on the stocks we cover globally (the implications really are global).   There are two versions of Trump’s America: one in which he attempts to lead like a CEO, and one in which he attempts to rule like a demagogue.  We have no idea which one will come to pass (we really don’t) but the market implications of each are quite different.   In either case, with Trump promising $1tr in infrastructure…

With markets trying to make sense of the election of President Trump, we have looked at the implications on the stocks we cover globally (the implications really are global).   There are two versions of Trump’s America: one in which he attempts to lead like a CEO, and one in which he attempts to rule like a demagogue.  We have no idea which one will come to pass (we really don’t) but the market implications of each are quite different.   In either case, with Trump promising $1tr in infrastructure…

Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

Morningstar provides data on more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 16 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement or management as of June 30, 2015. We have operations in 27 countries.

Download the Morningstar Fact Sheet : http://corporate.morningstar.com/US/documents/MarketingFactSheets/AboutMorningstarFactsheet.pdf

Fears of the impact of Britain's exit from the European Union have pushed down the prices of most European communication stocks. We think this is an overreaction as we view telecom as a sector somewhat immune to geopolitical changes. In our view, Brexit will have no effect on cross-border transfers of voice or data as mobile termination rates for voice have already been reduced to negligible levels and for data have been cut in half and will be down to local roaming rates by the end of 2017.Within the U.K., we think BT will likely be the most affected as the majority of its revenue is from the U.K. Its only non-U.K. revenue is from its global services division. However, we think what losses do accrue will be offset by stronger revenue from the global services division as revenue from other currencies is translated into a weaker pound.Analysts: Allan C. Nichols, CFA

Fears of the impact of Britain's exit from the European Union have pushed down the prices of most European communication stocks. We think this is an overreaction as we view telecom as a sector somewhat immune to geopolitical changes. In our view, Brexit will have no effect on cross-border transfers of voice or data as mobile termination rates for voice have already been reduced to negligible levels and for data have been cut in half and will be down to local roaming rates by the end of 2017.Within the U.K., we think BT will likely be the most affected as the majority of its revenue is from the U.K. Its only non-U.K. revenue is from its global services division. However, we think what losses do accrue will be offset by stronger revenue from the global services division as revenue from other currencies is translated into a weaker pound.Analysts: Allan C. Nichols, CFA

We Believe Brexit Fears Have Unfairly Driven Down Shares of Most European Communication Stocks

Germany

Telefonica Deutschland Holding AG provides telecommunications services in Germany. The Company offers fixed-line and mobile telephone, Internet, and data transmission services to residential and corporate customers.

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Telefonica Deutschland Holding (O2D GR)

Telefonica's Disposal of Telxius

Telefonica manages FCF to preserve the divi, by reducing investments. Debt fell c.15% LTM. Structural growth potential is low, competition high,...

Jesus Rodriguez Aguilar

Masmovil: Target Shareholders Looking for a Bump

A trio of PE funds - KKR, Cinven, and Providence - have launched a takeover bid to acquire a majority stake in Spanish telecom operator MásMóvil...

Janaghan Jeyakumar, CFA

Report from Mobile World Congress: The Transition to 5G Comes into Focus.

New Street Research attended this year's Mobile World Congress in Barcelona recently. While the move to 5G will bring huge increases in localized...

New Street Research

What Trump Means for Global Telcos

With markets trying to make sense of the election of President Trump, we have looked at the implications on the stocks we cover globally (the...

New Street Research

We Believe Brexit Fears Have Unfairly Driven Down Shares of Most European Communication Stocks

Fears of the impact of Britain's exit from the European Union have pushed down the prices of most European communication stocks. We think this is...

Morningstar, Inc.

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