The most important moment in years for Telefónica shareholders is approaching. The company will celebrate Investor Day on November 8, where it will announce the new strategic plan for 2023-2026 and the results of the third quarter. It is the first time that a meeting of these characteristics has been held since 2012, with César Alierta as president, –José María Álvarez -Pallete convened two for Telefónica Germany and Telefónica Brazil in 2017 and 2018– so the market awaits expectantly. In the year, the value rises 5.47%.
The main interest is to know how the company will face the reduction of debt, which stood at 27,500 million as of June, compared to 26,687 million in 2022, and which has been the main drag on the price in recent years. Even more so in the current context of long-term high interest rates. The stock fails to recover its pre-pandemic value and its value is half of what it was in 2019.
The group’s strategy necessarily involves continuing to reduce its debt, the big issue that divides analysts when judging the value. “The debt is high, but 75% is at a fixed rate and an average maturity of 13 years, which mitigates the impact of higher rates and the risk of a rating downgrade,” they defend in Bankinter. Another part of the market considers, however, that the solution would involve a change in the shareholder remuneration policy, sacrificing dividends in exchange for reducing debt.
Ignacio Arce, analyst at Bestinver Securities, believes that the focus will be on “the strategic review of each market in which Telefónica operates (evolution of the competitive environment, growth prospects and improved returns); leverage, with ways to reduce debt; the sale and rotation of assets (including Telefónica Tech, the different FiberCos, Hispam, the submarine cable, etc.), and shareholder remuneration”, where a “new dividend policy” can be proposed.
Arce observes two possible levers for the value: “Although unlikely, the possible sale of Hispam [división que agrupa los negocios de Latinoamérica, excepto Brasil y Argentina] or cutting the dividend could be received positively by the market and would help deleverage the balance sheet more quickly.”
Regarding shareholder remuneration, Divacons AlphaValue comments that “European telecom companies stopped having decent growth a long time ago, with dividends becoming more valuable. Today, Telefónica offers a dividend yield well above its peers (8%), which reflects the loss of confidence in the financial markets in the ability to deleverage while maintaining its remuneration.” The firm began 2023 with the Spanish company as a member of its model portfolio; He is currently not there, but “he still likes it.”
JP Morgan, for its part, directly recommends that Telefónica, and also Vodafone, cut the dividend due to the increase in the cost of the sector’s debt due to the rise in rates. For now, and within the measures aimed at improving efficiency and reducing debt, the new strategic plan that Telefónica will present will include a voluntary resignation plan in Spain for a maximum of 5,000 employees.
Regarding the third quarter accounts, Ignacio Arce anticipates “weak results at the operating level, with income and oibda in the main operations (Spain, Germany, Brazil and Hispam) and “a reduction in net debt of 7%.” Goldman Sachs is confident that “the improvement in growth in Spain will continue, thanks to the support of the macro context and the tailwinds in energy costs, although lower.” Something that he also observes in Brazil, “with strong GDP growth.” The bank believes that “both countries could partly offset the impact of the loss of the virtual mobile operator 1&1 as the first customer in Germany.”
For now, the market chooses to maintain the value for the most part, with 47% of purchase recommendations; 37.5% selling and 15.5% selling. The final verdict will arrive on the 8th.
A fall in the stock market that has made the company more vulnerable
STC Group. Telefónica arrives at its big meeting with the investor after completing one of the most relevant operations in its business history: the entry of the Saudi group STC Group with the purchase of 9.9% of the capital for 2.1 billion euros, which makes it the first shareholder. STC, which needs the approval of the Spanish Government, assures that it is not seeking control of the company and has confirmed its support for the Spanish telecom company. which has led to a sharp drop in the price in recent years, as well as the slowdown of business in some international markets. In parallel, Goldman Sachs considers that the MásMóvil and Orange merger could become a catalyst for value. “The risk for Telefónica is asymmetrically bullish; “a failure of support [por parte de la CE] could make it go up 50% over time.”
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