European Telecoms has outperformed the European stock market by just +3ppts in 2015. For 2016, positive themes include better topline growth, operating leverage, cost-cutting, cross-border M&A, valuation and dividends. Here, we retain our Attractive view of the sector and explore three key themes.
Five reasons why we still view Euro Telecoms as Attractive.
1) Legacy revenue/EBITDA headwinds of voice, SMS, MTR and roaming have almost expired.
2) We forecast better growth rates in fixed-line (fibre, TV, wholesale) and mobile (LTE, data).
3) Operating leverage should shift from headwind (2010-14) to tailwind (2015+).
4) We see scope for cost-cutting. 5) Crossborder consolidation could emerge as a theme during 2016. We see valuation and dividend returns as compelling.
Stock selection. Our favourite stocks are Vodafone, Cellnex, Com Hem, NOS, KPN, Inmarsat, TI, Telenor, TDC and Sunrise. Among our Equal-weights, we prefer BT to DT and Telefonica. We are more cautious on TeliaSonera, TEF D
and Swisscom.