TheChek News Flow

Nokia and Alcatel-Lucent are marching towards the completion of their

combination, with two key catalysts achieved: 1) the material improvement in 2Q

fundamentals as compared to 1Q, particularly in terms of profitability and 2) the

confirmed sale of Nokia’s map division HERE. A large part of our rationale for

upgrading Nokia to Overweight shortly following the announcement of its plan to

acquire Alcatel-Lucent was that while the deal may create uncertainty for investors,

the numerous catalysts to come would prove very positive for shares. With two of

these catalysts now behind us, the natural question is of course… what next? We

think there continue to be sufficient positive catalysts over the coming year to

warrant reiterating Nokia as the Top Pick within our European Technology

Hardware coverage. We look for further pre-deal cost savings at Alcatel, the sale of

its submarine cable business, a likely Samsung IPR resolution by year-end and the

increased likelihood of early deal closure to contribute to share price appreciation

even ahead of closing. Once the deal is closed, we see the potential for initial but

material cost savings to be achieved in the first year and for material shareholder

returns. The combination of these factors leaves us viewing current valuation of

16x/12x 2016/17E as significantly undervalued for a company that we expect to

drive 20% CAGR in EPS and to return at least 5% of its market cap to shareholders

per year. We reiterate our Overweight rating