You are currently viewing Telefónica’s profit was not so expensive per PER since 1998

The shareholders of Telefónica are, finally, living a sweet moment with their shares, which this year are the sixth most bullish of the entire Ibex 35, with a rise that already exceeds 26%. Recently they have even reached close to 5 euros (in fact, they stopped exactly there, where the previously placed sales orders were released), something that has not happened since the disaster caused by Covid, in February 2020. However, they still are almost 10% away from erasing all losses caused by the pandemic.

This strength has also coincided with a significant improvement in the recommendation it receives from analysts, who came close to buying. However, as the share price has continued to rise in recent weeks, analysts have begun to fold candles and have again slightly deteriorated the advice they give, which is to hold.

And it is that the B-side of this improvement translates into a strong increase in the price of the multiples paid by Telefnica. Looking ahead to this year’s earnings, whose estimates have not improved, the PER -times that the profit is included in the price of the share- already reaches 13.8 times, a level that has not been seen, on average, since 1998, when the share was trading between 13 and 14 euros.

“Telefnica has some clear attractions in its international business, where growth is accelerating for the coming years; however, we believe that in Spain there will be no growth despite the consolidation”, they explain from Credit Suisse. “Today the Spanish market is still too competitive, with Digi growing a lot with ultra-high rates. low cost“, adds Juan Pea, an analyst at GVC Gaesco.

According to the consensus of analysts compiled by Bloomberg, Telefnica’s shares have already run out of upward potential since the average target price is set at 4.8 euros. However, there are more and more analysis houses that see Álvarez-Pallete’s teleco even above 6 euros. These are AlphaValue, Deutsche Bank and GVC Gaesco. Juan Peña, an analyst at the latter, believes that “there is still more to go as we see structural strengths versus temporary weaknesses.” “Among the strengths is clearly the Brazilian real, which after doing very poorly in recent years is now recovering a lot, and will continue to do so; we also see a competitive improvement in the Spanish market, which we hope will improve further after the operation between Orange and MsMvil and other operations that are yet to come”, adds Pea, who adds the option that “value continues to emerge in its assets through selective divestments and purchases, as They have already anticipated what they are going to do with rural fiber”.

Normalized profit

According to the consensus of analysts collected by FactSet, its EBITDA, after soaring above 21,000 million last year due to extraordinary divestments, will return to normal around 12,000 million euros, well below the 13,500 in 2020 Y the more than 15,000 million reached in 2019.

“We think that high leverage is another headwind for the company in an environment of rising rates and, therefore, we prefer to enter Telefnica through the subsidiaries rather than through the parent company, which offer greater growth and lower leverage,” they point out in Credit Swiss. “On the good side, we believe that the purchase of Oi’s assets or any potential operation in Spain or Germany is not yet in the price,” they add. For the consensus of FactSet, this year will close with a debt/ebitda ratio of 2.8 times. It is slightly below Vodafone and Deutsche Telekom, and only above Orange, which is calculated to have a debt of 2 times its EBITDA.

Bank of America, which estimates that Telefnica could be worth even 50% more in the next three years, believes that there is less and less reason to underweight Telefnica: leverage will be reduced thanks to currencies, greater synergies in Brazil and the United Kingdom and the resistance of the cash flows in Spain, in addition to the aforementioned optionality of having more concentration operations in the sector.

dividend cut

Another factor that has recently changed in Telefnica is the dividend. The company announced that, after the toughest moments after the pandemic in which it was forced to pay in script to avoid the cash outflow, it was already in a position to resume the payment in cash to its shareholders. That yes, I will keep it, for the moment, in €0.3 per sharewhich implies an annual return of 6.1% at current prices.

The first payment of the year is scheduled for next June, which be 0.15 euros, so it is expected that until the cut-off date, Telefónica will be the target of dividend hunters, and from then on that cash outflow will be deducted from the share price. In the absence of confirmation, it will be paid at the end of June and until December it is not expected to pay the remaining 15 cents, in addition to any potential share repurchase that the company itself has already warned about.

Little by little it improves its sustainable ‘rating’

Telefónica has recently seen an improvement in the ratingESG awarded to you by MSCI. The teleco,previously received a rating of BBBnow get a Aas collected Bloomberg.It remains average for MSCI in sustainability terms, without finishing positioning itself as one of the leading Ibex companies in this regard for this supplier. Within the Spanish index, they have the highest note (AAA) Iberdrola, Inditex, BBVA, REE, Naturgy and Endesa.


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