European telecoms: Barclays sees ROCE recovery ahead

Telefonica Deutschland Holding AG

11/03/2022 12:34

** Although European telecoms under Barclays' coverage have
seen a gradual erosion of return on capital employed (ROCE) of
about 1pp from 2016 to 2021, the brokerage has a positive stance
on the sector
    ** It expects increase in capex to translate into a higher
profitability driven by stable top lines and operating leverage,
and eventually to lead to ROCE recovering to 8% by 2025, i.e.
above weighted average cost of capital (WACC)
    ** Barclays says generating ROCE above its WACC is "a
bedrock of value creation for a company," adding it estimates
that looking ahead about 60% of companies will cover their cost
of capital (vs 45% currently)
    ** It names OTE Telecom  OTEr.AT , Elisa  ELISA.HE  and
Telenor  TEL.OL  as companies having the highest ROCEs, while
Telefonica Deutschland  O2Dn.DE , Telecom Italia  TLIT.MI  and
Vodafone  VOD.L  are "at the other end of the spectrum"
    ** In its view, Deutsche Telekom  DTEGn.DE , BT group  BT.L 
and Tele2  TEL2b.ST , all "overweight"-rated, should cover their
cost of capital in the mid-term 
    ** Barclays also adds that besides organic improvement,
another key trigger for faster ROCE improvement could be M&A,
which has become a major focus in 2022, the brokerage points out
   
    

 (Reporting by Marta Frackowiak)
 ((marta.frackowiak@thomsonreuters.com))