October 24, 2020

Telefónica is looking for the way to boost its value after having reached its lowest levels in almost 25 years


Telefónica has set a negative historical milestone this week in its performance on the Stock Market. After a difficult new year in the markets, the telecommunications company is now valued below its price in 1997, when its privatization was completed. Despite having come back in Tuesday’s session, the group is still at its lowest levels since the beginning of the century, in a context of full reorganization of the company and its international business. The last action plan presented by the company in November was aimed at improving its performance on the stock market, something that, for the moment, is not being verified.

The year 2020 has been difficult for all listed companies. Not surprisingly, the fear of a second wave of quarantines due to the coronavirus caused a significant drop in all European stock exchanges this Monday and the Ibex registered minimums since May, in full alarm. In the Spanish selective, Telefónica is the seventh with the worst record so far this year, having reduced the valuation it had at the beginning of the year by half.

It is not the only bad news in the stock market that has recently affected Telefónica. The poor performance of the share has led the company to fall to the tenth position of the most valuable companies in Spain. In addition, the old company, together with the bank BBVA, have abandoned the Eurostoxx 50 index in recent days, which includes the largest European listed companies. The two companies had been in this selection since 1998 and it reduces the Spanish presence to only four firms: Amadeus, Inditex, Iberdrola and Banco Santander.

Throughout this year, various analysis houses have been lowering Telefónica’s target price, that is, the value they expect the share to have in the next twelve months. One of the last was, this month, the American JP Morgan, which predicted that the group’s securities would trade below three euros, something that already happened this Monday. To this is added the pressure exerted at different times of the year by those known as bears, who are speculative investors who bet that the price will fall. The last of them was the Millennium International Management fund, just a few days ago.

Singular Bank analysts consulted by this means point out that the fall of Telefónica is in line with what the entire sector is suffering. “High expectations had been generated about the sector that have not been fulfilled despite the fact that technology is increasingly present on a daily basis,” they point out. Thus, the business expectation is “flat” and “does not inspire confidence” in the telecom sector. To this, these analysts add, it is added that the market does not finish assessing the possible advances of 5G, which have amounted to billions of euros. “Investors are somewhat skeptical about trusting that 5G will be a true revolution and that investments will ultimately be profitable,” they stress.

The company, when asked questions from this medium, avoids assessing the specific moment that it lives in the Stock Market and is confident that the action will rise as the action plan presented by its president, José María Álvarez Pallete, in November of last year. This plan contemplated the setting of the business focus in Brazil, Spain, the United Kingdom and Germany, as well as the sale of subsidiaries in the rest of Latin America. It also reorganized the structure of the company and the various businesses in which it operates, such as data centers or telecommunications infrastructures.

In the context of that change of course made by Álvarez Pallete last November, the company is leading various corporate operations to improve its presence in some markets or get out of others. The one with the greatest depth at hand is taking place in Brazil. There, a joint proposal by Telefónica, TIM and América Móvil has bid for the mobile phone business of the operator Oi, one of the most important in the country and which is currently in bankruptcy. If this operation is successful, Telefónica would expand its presence in what, for now, would be its second market in terms of revenue. This purchase is not expected to close before the end of this year.

Another of the operations that Telefónica has announced this year leads to the United Kingdom, one of the key markets for the group. In the past, the group attempted a sale or divestment in O2, its British subsidiary. However, this exercise has announced a merger between this company and the American Virgin. The operation, with which a large operator is created to compete with British Telecom, involved the payment of some 6,200 million euros for Telefónica, which would be used to reduce its debt. As announced in the spring, this joint venture, composed of 50% by each operator, would not be closed until next year.

But there have also been sales of subsidiaries, as announced in the 2019 action plan. Latin America, all business on the American continent outside of Brazil, was put up for sale or looking for partners. One of the most important was the sale to Liberty for 425 million euros of your business in Costa Rica. The operation was somewhat complex, since previously the sale had been agreed with Millicom for just over 500 million, but the buyer backed down and Telefónica has legal actions against the group. Too the agreement was frustrated in El Salvador, where Telefónica sold its subsidiary to América Móvil for about 170 million.

But in this course, Telefónica is being seen entering businesses that are not precisely telephony. That is where the agreement that closed this year for the creation of a joint venture with Prosegur for the sale of alarms in homes is framed. “The objective of the alliance between Prosegur and Telefónica is to capture the growth opportunity presented by the alarm market in Spain, based on the great strategic fit and the complementarity of both partners,” the company explained then.

This business could be joined in the coming months by another that is also not directly related to the company’s traditional activity: the installation of solar panels. This was advanced on Monday by Expansión and confirmed by this medium. According to company sources, it is a pilot test that is being carried out in Alicante with a local installer of solar panels for self-consumption in homes. If the test is satisfactory for the group, it is not ruled out to advance in this business that they consider “crossed” to theirs, considering it within the connectivity services at home.

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