/BofA sees telecom stocks as defensive dividend stocks in the face of inflation
BofA sees telecom stocks as defensive dividend stocks in the face of inflation

BofA sees telecom stocks as defensive dividend stocks in the face of inflation

Analyst David Wright from the US investment bank Bank of America (BofA) therefore advises in an industry study published on Wednesday on European telecom stocks, although careful selection is important. In this context, he upgraded the shares of the mobile phone company Telefonica Deutschland by two notches from “Underperform” to “Buy” and raised the price target from EUR 2.30 to EUR 2.90.

Also estimated He slightly higher price targets for the O2 parent Telefonica, Deutsche Telekom, Vodafone and its cell tower subsidiary Vantage Towers, among others, while they are now somewhat lower for 1&1 or BT Group. The valuation base is slightly further in the future and now refers to December 2022 and March 2023 for UK companies.

Heading into 2022 we can see that private investor interest in the telecoms sector has increased, while the European telecom sector is historically underweight on the stock exchanges, writes the BofA analyst. “With overall market sentiment shifting towards defensive stocks, we see a rally. However, investors should be cautious to avoid ‘value traps’ as inflationary pressures weigh on returns.”

Wright therefore advises to keep an eye out for possible price drivers in individual stocks, but also to pay attention to the pricing power and austerity measures of companies, as this could counteract inflationary pressure. The investors with whom he is in contact are aware of the historical pressure on earnings that arises, among other things, from the capital intensity – for example when building radio towers or expanding fiber optics. If rising inflation is added to the costs, it will be difficult.

In detail, the expert refers to the “rapidly” developing area of ​​mobile phone masts, in which ongoing consolidation in the form of mergers is to be expected . Fiber optic expansion is also shifting to partnerships, and outsourcing data centers in Europe would be desirable. Although it is not very well developed, it is still valuable, especially in combination with cloud and other services in the field of information and communication technology.

The individual markets also differ considerably, for example with regard to price increases . According to Wright, there is more scope for fee increases in Germany and Great Britain than in Italy and Spain. Against this background, too, he sees the shares of Deutsche Telekom, the BT Group and Vodafone as well as those of Telefonica Deutschland as his favorites.

To Deutsche Telekom, which he says “buy” and a price target Now valued at EUR 24.80, he emphasizes that Bonn’s ambitions are to sell its mobile phone masts in the current year, which could free up considerable values. “Also, Germany is one of the more stable markets in Europe when it comes to price increases.”

Vodafone, rated Buy and with a new target price of 186p, could also benefit from further monetization of its cell tower subsidiary Vantage Towers (new, higher price target 35 euros) benefit. At the same time, the company’s business in the home market of Great Britain and in Germany is rather protected against inflation, the measures to reduce costs are well advanced and wages are relatively low, writes the BofA analyst Purchase recommended, is “in an attractive German market” and is gaining momentum with increasing grid parity. In addition, O2 is the sector with the least risk in terms of wage and energy costs.

According to the “Buy” rating, Bank of America assumes that the stock will generate a total return from price gains within 12 months and will yield a dividend of at least 10 percent.


Analyzing institution Bank of America.

Publication of the original study: 01/12/2022 / 01:42 / EST

First distribution of the original study: 01/12/2022 / 01:42 / EST


Image sources: Tupungato / Shutterstock.com, Dennis Diatel / Shutterstock.com

Read More