JYSKE MARKETS
Telenor: A growing European telecom operator
Jyske Markets, Vestergade 8-16
DK-8600 Silkeborg
Senior equity analyst:
Robert Jakobsen
+45 89 89 70 44
jrj@jyskebank.dk
Assisting Analyst
Christoffer Thimsen
+45 89 89 70 47
Christoffer.Thimsen@jyskebank.dk
Assisting Analyst
Kasper Friis Toft
+45 89 89 71 62
Kasper.Friis.Toft@Jyskebank.dk
---------------------------------------------Important investor information:
Please see the last pages.
Side 1/25
JYSKE MARKETS
New case: Telenor (BUY, price target of NOK 150, medium risk)
•
A growing European telecom operator.
•
Exposure to EM is valuable.
•
Telenor expects considerable lift in the cash flow.
•
Jyske Bank is bullish about the telecom sector.
•
Dividend increase of 17% in 2014, more in store in 2015.
•
Jyske Quant score supports BUY recommendation.
•
Telenor should be trading at a premium to the sector, but this is
currently not the case.
Side 2/25
JYSKE MARKETS
Telenor in brief
•
•
•
•
•
•
•
•
•
•
Telenor is the largest Nordic telecom operator.
Its market value exceeds NOK 200bn.
It has 33,000 employees.
In 2014 sales of NOK 109bn and EBITDA of NOK 38bn are expected.
Telenor's is headquartered in Norway, which is also the most important single
market (28% of EBITDA).
Telenor also has great exposure in Sweden, Eastern Europe and not least Asia.
Telenor owns 33% of the shares in VimpelCom, which is a major mobile
operator (200m subscriptions) in primarily Russia and Italy. The stake makes
up a market value of NOK 30bn or 15% of Telenor's market capitalisation.
The largest shareholder in Telenor is the Norwegian state which owns 54% of
the outstanding shares. 40.5% of the shares is flowing freely.
Telenor's 2013 results were released in early-February. Sales were a tad higher
than expected. On the other hand, EBITDA was a tad lower than expected.
For 2014 the management expects low one-digit sales growth and a stable
EBITDA margin relative to 2013 (34.5%).
Side 3/25
JYSKE MARKETS
New case: Telenor (BUY, price target of NOK 150, medium risk)
• A growing European telecom operator.
•
Exposure to EM is valuable.
•
Telenor expects considerable lift in the cash flow.
•
Jyske Bank is bullish about the telecom sector.
•
Dividend increase of 17% in 2014, more in store in 2015.
•
Jyske Quant score supports BUY recommendation.
•
Telenor should be trading at a premium to the sector, but this is
currently not the case.
Side 4/25
JYSKE MARKETS
A growing European telecom operator
Telenor has historically performed well compared to its European rivals. This
development is expected to continue.
18%
8%
12%
4%
6%
2%
0%
0%
-2%
2011
2012
2013
2014E
2015E
-6%
-4%
EBITDA vækst (år/år)
Omsætningsvækst (år/år)
6%
-12%
-6%
-18%
-8%
Telenor: omsætningsvækst
Peers: Omsætningsvækst
Telenor: EBITDA vækst (HS)
Peers: EBITDA vækst (HS)
Note: Peers are Orange, Vodafone, Tele2, TeliaSonera, Deutsche Telekom, KPN, Swisscom, Belgacom and Portugal Telecom.
Source: Bloomberg
Side 5/25
JYSKE MARKETS
New case: Telenor (BUY, price target of NOK 150, medium risk)
•
A growing European telecom operator.
• Exposure to EM is valuable.
•
Telenor expects considerable lift in the cash flow.
•
Jyske Bank is bullish about the telecom sector.
•
Dividend increase of 17% in 2014, more in store in 2015.
•
Jyske Quant score supports BUY recommendation.
•
Telenor should be trading at a premium to the sector, but this is
currently not the case.
Side 6/25
JYSKE MARKETS
Exposure to EM is valuable
•
Telenor generates 45% of EBITDA in Asia!
•
This is unique for a European telecom operator.
•
Telenor has a growth culture. Hence, the management will not
hesitate if it sees new attractive investment opportunities that may
deliver an excellent return.
•
Most recently, Telenor won the rights to offer mobile telephony in
Myanmar ahead of 90 other operators.
–
–
–
A market with 60m inhabitants.
Only 10% owns a telephone.
If things develop as Telenor wants, the share will be increased to 70% in
2019.
Side 7/25
JYSKE MARKETS
Exposure to EM is valuable.
Penetration degree and Telenor's market position in Asian markets
140%
Thailand; 65
Mobil penetrationsrate
120%
Malaysia; 28
100%
80%
Pakistan; 189
60%
India* ; 363
Bangladesh; 115
40%
20%
Myanmar; 60
0%
0
-20%
1
2
3
4
5
6
7
Telenor markedsposition
Side 8/25
JYSKE MARKETS
New case: Telenor (BUY, price target of NOK 150, medium risk)
•
A growing European telecom operator.
•
Exposure to EM is valuable.
• Telenor expects considerable lift in the
cash flow.
•
Jyske Bank is bullish about the telecom sector.
•
Dividend increase of 17% in 2014, more in store in 2015.
•
Jyske Quant score supports BUY recommendation.
•
Telenor should be trading at a premium to the sector, but this is
currently not the case.
Side 9/25
JYSKE MARKETS
Telenor expects considerable lift in the
cash flow
•
Telenor expects a considerable lift in the cash flow.
•
In more concrete terms, Telenor expects to deliver an adjusted cash
flow of no less than NOK 28-30bn in 2015.
•
This will be a lift of above 33% compared to NOK 21bn in 2013.
•
The advance is to be driven by:
–
–
–
–
–
–
Growth in emerging-market countries
Break-even in India
Stabilisation in Norway
Cost savings
Normalisation of CAPEX
Expansion into new markets - e.g. Africa
Side 10/25
JYSKE MARKETS
Telenor expects considerable lift in the
cash flow
The market does not yet discount a fulfilment of cash flow forecast
30
Telenor forecast:
NOK 28-30bn
25
NOK mia.
20
15
10
5
0
2010
2011
2012
2013
E2014
E2015
E2016
Justeret frit cash flow
Source: Bloomberg
Side 11/25
JYSKE MARKETS
New case: Telenor (BUY, price target of NOK 150, medium risk)
•
A growing European telecom operator.
•
Exposure to EM is valuable.
•
Telenor expects a considerable lift in the cash flow.
• Jyske Bank is bullish about the telecom
sector.
•
Dividend increase of 17% in 2014, more in store in 2015.
•
Jyske Quant score supports BUY recommendation.
•
Telenor should be trading at a premium to the sector, but this is
currently not the case.
Side 12/25
JYSKE MARKETS
Jyske Bank is bullish about the telecom sector
•
The telecom sector has an 'overweight' recommendation.
•
In a 10-year perspective the sector has a very attractive valuation.
•
Indicators are pointing towards a reduced risk potential for global
equities and defensive sectors are therefore preferable. The
telecom sector fits well into this.
Side 13/25
JYSKE MARKETS
New case: Telenor (BUY, price target of NOK 150, medium risk)
•
A growing European telecom operator.
•
Exposure to EM is valuable.
•
Telenor expects considerable lift in the cash flow.
•
Jyske Bank is bullish about the telecom sector.
• Dividend increase of 17% in 2014, more in
store in 2015.
•
Jyske Quant score supports BUY recommendation.
•
Telenor should be trading at a premium to the sector, but this is
currently not the case.
Side 14/25
JYSKE MARKETS
Dividend increase of 17% in 2014, more
in store in 2015
•
In May 2014 Telenor will pay a dividend of NOK 7 per share.
•
This is 17% higher than the year before.
•
The NOK 7 per share corresponds to a dividend yield of 5.8%.
•
If everything proceeds as planned (particularly with respect to
Telenor's increase of the adjusted cash flow) we expect Telenor to
raise its 2015 dividend to NOK 8 per share.
Side 15/25
JYSKE MARKETS
Dividend increase of 17% in 2014, more
in store in 2015
Telenor's dividend bears comparison with rivals
7,5%
120%
7,0%
110%
6,5%
100%
6,0%
90%
5,5%
80%
5,0%
70%
4,5%
60%
4,0%
50%
Telenor
Orange
Dividende 2015E
Vodafone
Tele2
TeliaSonera Deutsche
Dividende gennemsnit
Telekom
Payout rate (HS)
Source: Bloomberg
Side 16/25
JYSKE MARKETS
New case: Telenor (BUY, price target of NOK 150, medium risk)
•
A growing European telecom operator.
•
Exposure to EM is valuable.
•
Telenor expects considerable lift in the cash flow.
•
Jyske Bank is bullish about the telecom sector.
•
Dividend increase of 17% in 2014, more in store in 2015.
• Jyske Quant score supports BUY
recommendation.
•
Telenor should be trading at a premium to the sector, but this is
currently not the case.
Side 17/25
JYSKE MARKETS
Jyske Quant score supports BUY
recommendation
•
•
The Jyske Quant score of 5.2 supports
our BUY recommendation.
The closest rivals are having a Jyske
Quant score of 4.7 on average.
Fingerprint of the Jyske Quant score of Telenor
Quant score
8
6
Kursudvikling
Fundamental
4
•
Particularly Telenor's relatively high
scores of Fundamental Value, Financial
Strength and Quality were impressive.
2
0
Momentum
Fundamental relativ
Kvalitet
Telenor
Finansiel styrke
Vægtet gennemsnit af Peer
Side 18/25
JYSKE MARKETS
New case: Telenor (BUY, price target of NOK 150, medium risk)
•
A growing European telecom operator.
•
Exposure to EM is valuable.
•
Telenor expects a considerable lift in the cash flow.
•
Jyske Bank is bullish about the telecom sector.
•
Dividend increase of 17% in 2014, more in store in 2015.
•
Jyske Quant score supports BUY recommendation.
•
Telenor should be trading at a premium to the
sector, but this is currently not the case.
Side 19/25
JYSKE MARKETS
Telenor should be trading at a premium to
the sector, but this is currently not the case
In terms of estimated P/E Telenor is trading at an unjustified discount
Peer Gruppe
Virksomhed
P/ E(2014) P/ E(2015) EV/ EBITDA(2014) EV/ EBITDA(2015) P/ B (2014) P/ B (2015)
Telenor ASA
12,7
11,5
6,7
6,3
2,4
2,3
Orange SA
11,0
11,1
5,0
5,1
1,1
1,0
Telekomunikasi Indonesia Perse
14,1
13,1
5,2
5,0
3,2
3,0
Koninklijke KPN NV
28,6
15,9
7,0
7,1
1,5
1,3
Vodafone Group PLC
15,7
21,7
6,5
6,6
0,9
0,8
Deutsche Telekom AG
17,7
15,9
5,8
5,6
2,0
1,9
Swisscom AG
16,4
16,1
8,1
8,0
3,7
4,0
Portugal Telecom SGPSSA
21,4
14,9
4,2
4,2
1,2
1,2
TeliaSonera AB
11,5
11,1
7,7
7,6
1,8
1,8
Tele2 AB
20,1
16,9
7,2
6,7
1,7
1,7
Belgacom SA
13,2
14,3
5,9
6,0
2,5
2,5
Vægtet Gennemsnit
15,8
15,8
6,2
6,2
1,7
1,7
Middelværdi
16,6
14,8
6,3
6,2
2,0
2,0
Præmie ifht. vægtet gennemsnit
-24%
-22%
6%
2%
22%
18%
Source: Bloomberg
Side 20/25
JYSKE MARKETS
New case: Telenor (BUY, price target of NOK 150, medium risk)
•
One of the few companies that can deliver growth.
•
Exposure to EM is valuable.
•
Telenor expects a considerable lift in the cash flow.
•
Jyske Bank is bullish about the telecom sector.
•
Dividend increase of 17% in 2014, more in store in 2015.
•
Jyske Quant score supports BUY recommendation.
•
Telenor should be trading at a premium to the sector, but this is
currently not the case.
Side 21/25
JYSKE MARKETS
Security codes for Telenor
Bloomberg: TEL NO
Reuters: TEL.OL
ISIN: NO0010063308
Jyske Bank: 97 54 0 39
Daily sales of the share: NOI 240m or 1.8m shares.
Side 22/25
JYSKE MARKETS
Disclaimer & Disclosure
Jyske Bank is supervised by the Danish Financial Supervisory Authority.
The research report is based on information which Jyske Bank finds reliable, but Jyske Bank does not assume any responsibility for the
correctness of the material nor any liability for transactions made on the basis of the information or the estimates of the report. The estimates
and recommendations of the research report may be changed without notice. The report is for the personal use of Jyske Bank's customers and
may not be copied.
This report is an investment research report.
Conflicts of interest
Jyske Bank has prepared procedures to prevent and preclude conflicts of interest thus ensuring that research reports are being prepared in an
objective manner. These procedures have been incorporated in the business procedures covering the equity research activities of Jyske Markets,
a business unit of Jyske Bank.
Moreover, equity analysts at Jyske Bank cannot trade in equities for which they prepare research reports. If an analyst takes over for the
responsible analyst in connection with illness, business travels, etc., this analyst cannot trade in the relevant share on the day of publication of
the research report and the following day.
Jyske Bank may, however, hold positions, have interests in or business relations with the companies that are analysed. The research report has
not been presented to the company prior to its release. Analysts receive no payment from persons interested in individual research reports.
Read more about Jyske Bank's policy on conflicts of interest at www.jyskebank.dk/terms.
Jyske Bank’s share recommendations – current allocation
Allocation of recommendations, Danish shares (number)
Allocation of recommendations, all shares (number)
20
14
Source: Jyske Bank
12
15
10
8
10
6
4
5
2
0
0
Strong Buy
Buy
Reduce
Sell
Strong Buy
Buy
Reduce
Sell
Side 23/25
JYSKE MARKETS
Financial models
Jyske Bank employs one or more of the following models: Discounted cash flow (free cash flow), Economic Value Added and the dividend
model to determine the fundamental value of a company. The fundamental value is compared to a relative valuation based on multiples such
as P/E and EV/EBITA. The recommendation and the price target are moreover adjusted for the expected news flow and the market sentiment
based on knowledge of the industry and company-specific circumstances. Jyske Bank’s recommendations take into account the expected
development in the equity market, the various sectors and company-specific circumstances.
Risk
Investment in this share is associated with a risk. Movements in the equity market, the sector and/or news flows, etc. regarding the company
may affect the price of the share. See the front page of the research report for our view of the risk associated with the share. The risk factors
stated and/or calculations of sensitivities in the research report are not to be considered all-encompassing. If the share is traded in a currency
other than the investor’s base currency, the investor accepts an FX risk. In connection with an ADR or similar papers, the FX risk exists relative to
the currency in which the underlying share trades.
Update of research report
The planned update of the report will be prepared immediately upon the release of the company’s financial statements. In addition, research
reports may be prepared on special themes specifically for the company or research reports where the company is part of the special theme.
These research reports are published on an ad-hoc basis.
See the front page for the initial date of publication of the report.
All prices stated are the latest closing prices before the release of the report, unless otherwise stated.
Side 24/25
JYSKE MARKETS
Recommendation
Risk-adjusted return
Strong Buy
Buy
Reduce
>20%
10-20%
0-10%
Sell
<0%
Source: Jyske Bank
Share recommendation concepts
Our recommendations are relative to the market development and are based on an evaluation of the forecast return within the coming 12
months. The forecast return is the difference between the current price and our 12-month price target (the price target includes the
projected dividend). The equity market has historically yielded a return of around 10% (the US equity market, for instance, yielded a return of
10% during the period 1902-2011). When we determine the recommendation for a share we use the 10% as an estimate of the return in the
equity market.
Since our recommendations are relative and risk-adjusted, it is possible to compare our recommendations across sectors and risk categories. In
addition, the potential is stated in absolute terms via our price target. It should be borne in mind, however, that the recommendation is the
anchor. A BUY recommendation will remain a BUY recommendation until changed, even if price increases have taken the price ‘too close’ to the
price target.
The future and historical returns estimated in the research report are stated as returns before costs since returns after costs depend on a
number of factors relating to individual customer relations, custodian charges, volume of trade as well as market-, currency- and productspecific factors. It is not certain that the share will yield the stated expected future return/s. The stated expected future returns exclusively
express our best assessment.
Risk classification definitions:
Green products are products for which the risk of losing the invested amount is regarded as insignificant provided the investment is held to
maturity. The product type is simple to grasp. This category includes Danish goverment and mortgage bonds.
Amber products are products for which there is a risk of losing the invested amount partially or fully. The product type is simple to grasp.
This category includes equities traded in regulated markets, mutual fund units and certificates.
Red products are products for which there is a risk of losing more than the invested amount, OR product types which are difficult to grasp.
This category includes structured bonds, hedge funds, options and forward exchange contracts.
Side 25/25