On Thursday, UBS has updated its stance on Telenor ASA (OTC:TELNY) (EXCHANGE:TEL:NO) (OTC: TELNY) stock, increasing the price target from NOK150 to NOK164, while reiterating a Buy rating. The firm's analysis highlights several factors contributing to Telenor's favorable outlook.
Telenor is anticipated to benefit from a decrease in investment intensity, with capital expenditures relative to sales expected to drop from 18% to 14% between 2022 and 2025. This forecast is based on the company's progress in FTTH and 5G technologies, which are ahead of its competitors, and is further supported by regulatory changes in Norway that are seen as significantly positive.
The telecommunications company is also expected to experience mid-single-digit EBITDA growth, attributed to robust service revenue growth of around 4% over the last twelve months. This growth is considered to be among the best in the sector and is likely to be bolstered by cost savings from the discontinuation of copper networks, energy hedging strategies, and digital transformation initiatives.
UBS also points to potential mergers and acquisitions in the Nordic region as an additional value proposition for Telenor, with estimated value contributions of NOK8-11 per share. This potential is underpinned by a new competition framework from the European Commission.
Furthermore, UBS anticipates consensus upgrades to Telenor's free cash flow projections, with an expectation that the actual figures will exceed the implied guidance for 2025 by at least 9%, with UBS's own estimates being 14% higher.
Lastly, Telenor's valuation is noted to be approximately 30% below the sector average when considering its 7% dividend yield and a net debt to EBITDA ratio of 2.2. The dividend cover for 2025 is identified as a possible significant catalyst for re-rating the company's stock.
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