Don’t look now, but there’s another crisis in Europe — a crisis in the telecom industry. Telecom Italia is under siege. So is Telefonica. Debt levels are high, dividends have been slashed, and break-up and spinout plans are being put into motion for several large European telcos.
That means it’s time to buy. Here the logic: North American players such as AT&T are scrambling to pick up telecom assets, and they’re likely to now look internationally. The prices of European assets are depressed.
Not to pick on Europe, but this is so 1982. It’s time to break up all of the European telecom monopolies. Let’s get rolling — telecom breakups are fun. Look at what happened in the U.S. since the Ma Bell breakups in 1982: hundreds of independent telcos, some of them bankrupt and some of them wildly successful, massive growth and value creation as well as destruction. Think about it: McCaw Cellular, MCI, Worldcom! Telco deregulation was so much fun.
Europe, meanwhile is ripe for opportunity. Investors must be salivating, because catalysts such as spinoffs, breakups, or debt restructuring could light a fire under stocks like France Telecom (Orange), Telecom Italia, and Telefonica. In addition, government regulators are looking at ways to loosen things up a bit. Many of these assets are surely being examined for acquisition by other International carriers, such as AT&T and Verizon.
Here are some of the leading European Telecoms by a Enterprise value/EBITDA/cash flow metric, which is often used in buyouts to identify opportunities. The lower the EV/EBITDA, the more attractive for a buyout.
Company M.Cap P/E Yield EV/EBITDA
Orange (NYSE: ORAN) $25B 6 4.17% 4
Telecom Italia (NYSE: TI) $12B N/A 3.20% 3.70
Telefonica (NYSE: TEF) $58B 11 4.77% 5.40
Vodafone (NYSE: VOD) $143B 11 7% N/A
VimpelCom (NYSE: VIP) $17B 7.5 13.50% 4.25
TeliaSonera (Sweden:TLSN) $29B 10 6% 7.42
Source of data: Thomson, Bloomberg
Yes, you should be careful about collecting the yield — dividends can be slashed at any time in a harsh evironment. But telecom companies are sources of steady sources of cash flow.
My prediction: Many of these companies will be in play in the next six months.