On Wednesday, UBS upgraded United Internet AG (UTDI:GR) stock from Neutral to Buy, adjusting the price target to €24.00, a slight increase from the previous €23.80. The upgrade comes after a significant drop in the company's share price, which has seen a 30% decline from its peak in January.
This decrease included a sharp fall before the second quarter, attributed to concerns about weakening trends at its subsidiary 1&1 following network outages in May.
The other half of the decline was due to a profit warning issued by 1&1 last week. Despite these challenges, the analyst noted that there has been a strong correlation between the stock prices of 1&1 and United Internet, even though 1&1 accounts for roughly 50% of the Group's EBITDA. In contrast, Ionos, another subsidiary representing about 30% of the Group's EBITDA, has seen its value increase by more than 40% year-to-date.
The second quarter profit warning from 1&1 has undoubtedly affected market sentiment, but the UBS analyst pointed out that most of the downgrades were one-off events. The underlying guidance was consistent with UBS's revised expectations set in June. Furthermore, the analyst expressed a growing conviction that 1&1 will complete its network buildout.
In the coming weeks, expectations are set for 1&1 to announce the completion of its 18-year National Roaming Agreement (NRA) with Vodafone (NASDAQ:VOD). This agreement is anticipated to have relatively fixed economics, which could reduce the necessity for further network construction. This development is seen as a potential positive for United Internet as it moves forward.
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