JPM cuts Telefonica Deutschland to 'neutral', lowers results, dividend forecasts

1&1 AG

16/08/2023 11:02

** JP Morgan downgrades Telefonica Deutschland  O2Dn.DE  to
"neutral" from "overweight," saying the stock lacks catalysts
after the German telecommunications provider lost the contract
with 1&1  1U1.DE 
    ** Counting in the loss, the broker lowers its yearly
forecast from 2026 onwards for free cash flow by 35-40%,
revenues by 6-8%, EBITDA by 15%, and capex by 5-8% 
    ** It expects the company to cut its dividend in mid-long
term, estimating 2025 DPS of EUR 13 c/share, which "more than
offsets" the wholesale cash flow loss and results in net debt
decreasing to 14% in mid term and 7% in long term  
    ** In bullish scenario the company may "only" cut costs to
minimise the wholesale losses, whereas 1&1’s improved economics
may see it abstain from the <1Ghz spectrum auction, JPM says
    ** In bearish scenario Telefonica may have to look for
revenue gains elsewhere, while 1&1 could support its growth
    ** Shares in Telefonica Deutschland have slumped 29.4% in
two weeks after 1&1  1U1.DE  ousted the company from a 5G deal,
switching to Vodafone  VOD.L 
    ** Out of 20 analysts that cover Telefonica Deutschland, one
rate the stock "strong buy"​, 12 rate it "hold" and seven rate
the stock "strong sell"/"sell" - Refinitiv data

 (Reporting by Mateusz Dobrzyniewski and Amir Orusov)
 ((Mateusz.dobrzyniewski@thomsonreuters.com;
Amir.orusov@thomsonreuters.com))