Nokia's potential disposal of HERE could leave TomTom as the only independent mapping provider globally, putting it in a strong position to monetise mapping IP. The valuation read from HERE is positive, and we raise our PT to €12.2. Move Overweight.
* Nokia's strategic review of HERE - and its potential disposal - suggest meaningful upside for the TomTom valuation.
Recent press articles on the potential disposal of HERE have placed its value between €2bn (its current book value at Nokia) to $4bn (a mooted but unconfirmed joint bid by Uber, Baidu and private equity, according to Bloomberg, 18 May). In the worst case, the read for TomTom is only partial - its revenue base in Licensing and Automotive, and its R&D assets are small relative to HERE. However, the assets are similar in terms of coverage (TomTom 44 million km, HERE 43 million) and they are both making investments in future autonomous driving applications.
On this basis, and given broader M&A discussion in the industry, we think the market should at least start to take into account the potential strategic value of the business to Automotive / OTT partners. We do not believe it has done so adequately so far, and upgrade to OW.
* Where is the value in the map?
Mapping assets are critical to the delivery of location-based services today, and highly automated driving applications in the future - as we discussed in our blue paper (November 6, 2013). The ability to monetise these assets to date has been limited - in part due to the deflationary impact of Google on the industry. However, in a world where Google is developing autonomous vehicles - and Automotive OEMs, Uber and the like are competitors rather than partners to Google - we think the value of independent mapping assets (HERE and TomTom) could be significantly higher. We reflect this in our new base case SOP, which rises to €12.2 per share.
* Where could we be wrong?
Our earnings-based valuations for TomTom derive valuations around the current share price, so our PT does reflect some optionality around autonomous driving applications. Management has stated that its mapping assets are not for sale, so investors could have a long wait to crystallise value. HERE also has a higher share than TomTom in the Autos industry today, which could affect relative valuation.