Telefonica Sets 3-Year Growth Plan - Analyst Blog
April 14 2011 - 11:52AM
Zacks
Spanish telecom giant Telefonica (TEF) set its
annual revenue growth target at 1% to 4% through 2013 at its
investor meeting in London.
A weak Spanish market remains a concern for the company as
customers are switching to cheaper offers from its competitors.
Telefonica expects its operating margin to decline slightly over
the three-year period from 38% earned in 2010, but remain above the
mid point of the 30–40% range.
We believe Spain is not working in favor of Telefonica. The
economic downturn in that country has been more than expected and
is likely to drag the company’s profits and liquidity. Further, the
company’s Spanish revenue continues to be affected by the ongoing
reduction in mobile termination rates, which is the fee that
operators charge each other to connect calls.
However, weak Spanish operations are expected to be fully offset
by strong growth in Latin America and Europe. Latin America is one
of the best performing areas and remains the principal growth
region for Telefonica. This segment continues to post healthy
subscriber additions on a quarterly basis. The company’s subscriber
base is expected to expand to more than 340 million by 2013 from
287.6 million reported in 2010.
Telefonica continues to invest in growth and transformation
projects, fostering the development of broadband services (both
fixed and wireless). The company will invest €27 billion,
distributed equally over three years (2011–2013). We believe
increased adoption of mobile broadband will fuel earnings growth
ahead.
The company reiterated its commitment to pay €1.75 per share as
dividends in 2012. Telefonica also plans to distribute at least the
same level of dividend in the years to follow through dividends or
share buybacks.
Telefonica is particularly well positioned in Brazil and Mexico,
and is actively gaining market share from its dominant competitor,
America Movil (AMX). Moreover, the consolidation
of Vivo Participacoes (VIV) with the Brazilian
fixed-line voice and broadband unit, Telesp (TSP),
in October 2010 enables Telefonica to offer full competitive
bundled services.
We are currently recommending our long-term Outperform rating on
Telefonica supported by the Zacks # 1 (Strong Buy) Rank.
AMER MOVIL-ADR (AMX): Free Stock Analysis Report
TELEFONICA S.A. (TEF): Free Stock Analysis Report
TELESP PART ADR (TSP): Free Stock Analysis Report
VIVO PARTICIPAC (VIV): Free Stock Analysis Report
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