European Telcos Set to Perform Better in 2018: Morgan Stanley
European telcommunications companies have underperformed for a second year, with big cap stocks among the main laggards, but 2018 should see an improvement, Morgan Stanley says in note.
- Cites momentum trade being potentially overbought, decent quarterly results, successful cost cuts, mobile recovery and low cash taxes as factors to spur recovery
- Top picks are Orange, Vodafone, KPN, Telecom Italia, Cellnex, Com Hem and Masmovil
- Suggests avoiding Tele2, Telefonica Deutschland, Swisscom
- Cuts Nos SGPS to equal-weight from overweight
- Cost cuts seen having further to run, notes “new generation” of cost cutters having emerged including Orange, Vodafone, Telenor
- Says Fiber spend now implied in Deutsche Telekom and Orange consensus but not in BT
- Sees scope for buybacks at Orange, Vodafone
- MS notes that sharp underperformance has typically been followed by strong outperformance, while telcos also screen attractively vs broader market on valuation
- NOTE: SXKP telcos index is 2nd-worst performing sub-sector in Stoxx 600 in 2017, down 2.5% vs SXXP up 8.6%