Telefónica beats expectations with its results: time to invest?
Telefónica increased its profit by 118% during the first quarter of this year compared to the same period of the previous year, up to 886 million euros. In this way, the company chaired by Álvarez-Pallete comfortably exceeds the forecasts that the market used for its accounts. A net profit of 547 million was expected.
Behind the momentum of the company’s figures is greater efficiency in management and better exchange rates compared to the end of 2020, although these maintained a “notable” impact on the accounts, as did the coronavirus.
Telefónica’s Oibda fell by 9%, in part due to the effect of exchange rates, which had a negative impact of 288 million euros on this concept and the coronavirus, with a negative impact quantified at 129 million euros.
In the opinion of María Mira, Fundamental Analyst of Investment Strategies, Telefónica achieves “very good figures”. “It is already the third consecutive quarter of improvement in the operating result, something very important in a year of pandemic. The restructuring and reorientation that Telefónica has carried out, which is so necessary, is undoubtedly beginning to bear fruit with a net profit that rebounds no less than 118.3%, thanks to this strong reduction in costs and improvement in efficiency that is reflected in addition to improving margins (which rises to 33% in OIBDA over turnover and 20.1% in the operating cash flow margin over sales) ”.
The most important thing: the reduction of Telefónica’s debt
Mira considers that perhaps the most important thing, a debt that is tending downward. Telefonica’s debt at the end of the quarter was 35,796 million euros, which represents a year-on-year reduction of 6.4%. However, when the pending operations materialize, the company foresees a fall in debt by 9,000 million euros to 26,000 million, which is equivalent to half of the group’s debt in 2016, when Álvarez-Pallete became president .
“Therefore, a very positive assessment for the figures published by Telefónica, which is why I reiterate my positive recommendation for the value in the medium / long term and based on a fundamental analysis,” says this expert.
Iván San Felix, Income 4 analyst, highlights that Telefónica’s results “have met the consensus forecasts in revenue and EBITDA, while they have exceeded widely in the lower part of the income statement due to the greater fall than expected of the D&A due to the sale of Telxius and net profit of 886 million ”.
The four markets considered strategic in the new plan (Germany, Brazil, Spain and the United Kingdom) accounted for 78% of revenues and 88% of Oibda, while the other 19% of revenues and 12% of Oibda came from Telefónica Hispam (3% of revenues are classified as ‘other’).
“By divisions, Spain has slightly exceeded the consensus forecastsThe United Kingdom has widely defaulted in revenue due to the strong impact of the lockdown, although it has far exceeded in EBITDA thanks to the strong cut in expenses, while HispAm has defaulted. Brazil online ”, underlines the same expert.
Bankinter also underlines that Telefónica’s revenues continue to be affected by the impact of the pandemic and the depreciation of Latin American currencies but they soften the negative trend of previous quarters “
Thus, in organic terms, Telefónica’s revenues fell between January and March 2021 by 1.3%; compared to the 2% cuts in the last quarter of 2020. Between April and June of last year the decrease was 5.6%, due to the 4.3% decrease in the third quarter.
The experts of the orange entity also emphasize that Telefónica maintains the guidelines for 2021. “Stabilization of income and OIBDA and normalization of CAPEX up to 15% of sales. The advancement of the joint venture between O2 and Virgin Media in the United Kingdom and the sale of towers to Telxius will reduce net debt by 9,000 million and generate capital gains of 6,000 million in the second quarter of 2021 “, they explain.
“This provides margin for the company to normalize the level of investments (still below the company’s objective in the first quarter: 12% of sales) and dar sustainability to the dividend in an environment of stabilization of the group’s operating metrics ”, they add.
Telefónica: profitability and dividend
However, Bankinter analysts warn that “despite a still high dividend yield (7.6%), the potential for structural growth is low, competition is high and the group faces a new investment cycle for the deployment of 5G and the purchase of spectrum. Debt reduction will accelerate with the execution of pending operations. Exposure to Latin American currencies increases the group’s risk profile ”.
Telefónica will deliver in June the remaining 0.15 euros of its interim dividend payable for 2020, while the 2021 dividend will be paid in December (0.15 euros) and in July 2022 (0.15 euros), although it must be previously approved by the shareholders’ meeting.
“The market may see the results with a relief, but it is probably still concerned about weak fundamentals,” they indicate from Citi. A) Yes, Telefónica shares are the only ones to rise by an Ibex 35 that today falls more than 2%. Specifically, the telco recorded advances of around 2%, exceeding 4 euros per share.
Graph of Telefónica’s stock price after presenting results
While waiting for analysts to begin to modify their estimates on Telefónica after the presentation of results, the average number of analysts collected by Reuters gives the Ibex company 35 a recommendation to hold, with a target price of 4.6 euros, which represents a potential upside of more than 14%.
So what So far this year, Telefónica’s rise in the Ibex 35 is close to 24%. Taking into account the premium indicators of Investment Strategies, Telefónica is listed in the consolidation phase, with a score of 5 out of 10 possible points. The trend is bearish in the medium term, but bullish in the long term. In both periods, the momentum is positive, but volume decreases and volatility increases.
Telefónica technical indicators
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