The telecom sector has been able to maintain its growth despite macroeconomic challenges by taking advantage of the high customer demand. With lingering macro uncertainty, it may behoove investors to shift their attention toward quality telecom stocks like Telefonica Brasil S.A. (VIV), Telekom Austria AG (TKAGY), and VEON Ltd. (VEON) this year due to the continued innovation and expanding acceptance of next-generation technologies.
The telecom industry gained immense traction with the onset of 5G technology, enabling tremendous possibilities in industries such as healthcare and transport. According to forecasts, the 5G Services market is expected to reach $781.72 billion by 2027, exhibiting a whopping CAGR of 51.1%.
The communications sector has been benefitting as businesses expand their offerings to provide high-speed network access in response to ongoing digital transformation and hybrid lifestyles. Another factor bolstering the narrative for these companies is that they often trade at reasonable valuations, making them attractive defensive plays during periods of market volatility.
In addition, as cellular networks, wearables, and information and communication technologies become more widespread, the wireless telecommunications service market is projected to reach $1.28 trillion by 2030, growing at a CAGR of 7.4%.
As the sector is expected to remain a bright spot this year, let’s look at the fundamentally sound telecom stocks VIV, TKAGY, and VEON that investors are paying attention to.
Telefônica Brasil S.A. (VIV)
Headquartered in Sao Paolo, Brazil, VIV is a mobile and fixed telecom services provider to residential and corporate consumers. Its fixed-line services portfolio includes local, domestic long-distance, and international long-distance calls, while its mobile portfolio comprises voice and broadband internet access.
In terms of forward EV/EBIT, VIV is trading at 10.52x, 33.9% lower than the industry average of 15.93x. Its forward EV/EBITDA multiple of 3.96 is 54.4% lower than the industry average of 8.69. In addition, its forward Price/Cash Flow of 3.28 is 60.8% lower than the industry average of 8.37.
VIV’s trailing-12-month CAPEX/ Sales of 20.60% is 479.3% higher than the 3.56% industry average. Also, its trailing-12-month net income margin of 8.50% is 151.3% higher than the industry average of 3.38%.
VIV’s net operating revenues rose 10.1% year-over-year for the fourth quarter that ended December 31, 2022, to R$ 12.66 billion ($2.50 billion). The company’s reported EBITDA increased 6.1% year-over-year to R$5.23 billion ($1.03 billion), while its free cash flow grew 10.7% from the year-ago value to R$816 million ($160.86 million). In addition, its total subscribers stood at 112,33 million, up 13.7% year-over-year.
Analysts expect VIV’s revenue to grow 5.5% year-over-year to $2.33 billion in the first quarter that ended on March 31, 2023. EPS and revenue are expected to increase 10.6% and 9.4% year-over-year to $0.52 and $10.08 billion for the fiscal year 2023, respectively.
Shares of VIV have gained 13.8% over the past three months to close the last trading session at $7.60.
VIV’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Growth, Stability, and Quality. In the 47-stock A-rated Telecom - Foreign industry, it is ranked #3. To see additional POWR Ratings for VIV for Value, Sentiment, and Momentum, click here.
Telekom Austria AG (TKAGY)
Headquartered in Vienna, Austria, TKAGY provides fixed-line and mobile communications solutions to individuals, commercial and non-commercial organizations, and other national and international carriers.
On March 6, TKAGY announced an agreement with Blue Ant Media Ink to launch Love Nature on its Pay-TV platforms in Central and Eastern Europe and take over the satellite distribution across Asia. Both companies are expected to benefit from the expansion of their footprint into new households.
In terms of forward EV/EBIT, TKAGY is trading at 6.96x, 56.3% lower than the industry average of 15.93x. Likewise, its forward EV/EBITDA multiple of 3.60 is 58.6% lower than the 8.69 industry average.
Also, its trailing-12-month net income margin of 12.90% is 281.2% higher than the 3.38% industry average. Likewise, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 18.92%, 8.60%, and 7.60% compare to the industry averages of 2.96%, 3.54%, and 1.64%, respectively.
TKAGY’s total revenue increased 7.7% year-over-year to €1.34 billion ($1.46 billion) for the fourth quarter that ended December 31, 2022. The company’s operating income came in at €185 million ($202.09 million), up 16.4% year-over-year, while its net income grew 230% from the year-ago value to €132 million ($144.20 million). Also, its earnings per share attributable to equity holders of the parent increased 233.3% year-over-year to €0.20.
Street expects TKAGY’s revenue for the year ending December 31, 2023, to increase 3.3% year-over-year to $5.55 billion. Its EPS is expected to increase by 42.6% per annum over the next five years. It surpassed the revenue estimates in each of the trailing four quarters, which is impressive.
Over the past six months, the stock has gained 22.6% to close the last trading session at $14.89.
TKAGY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It also has an A grade for Growth, Stability, and Quality and a B for Value. In the same industry, it is ranked first. Click here to see the other ratings of TKAGY for Momentum and Sentiment.
VEON Ltd. (VEON)
Headquartered in Amsterdam, the Netherlands, VEON provides mobile and fixed-line telecommunications services through a range of wireless, fixed, and broadband internet services.
On March 2, VEON announced that it had joined the GSMA Open Gateway, a new framework of common network APIs (Application Programmable Interfaces) designed to provide universal interoperability for developers.
Commenting on this tie-up, Kaan Terzioglu, CEO of VEON Group, said, “The GSMA Open Gateway provides a standardised way for developers to build new applications and services to the benefit of customers. As a digital operator that offers a wide range of digital services, we are delighted to join this GSMA initiative alongside our fellow operators.”
On March 1, VEON and OneWeb, a low Earth orbit satellite communications firm, established a partnership at the Mobile World Congress to deliver extended mobile internet access and digital services in emerging markets.
This collaboration is expected to boost VEON Group's "4G for all" and "humanitarian connectivity" focus, enabling the company to bridge the digital divide for millions of users, respond to disasters, and unlock economic growth.
In terms of trailing-12-month EV/EBITDA, VEON is trading at 4.32x, 56.5% lower than the industry average of 9.93x. Its trailing-12-month EV/Sales and EV/EBIT multiples of 1.57 and 8.30 are 20.5% and 50.9% lower than the industry averages of 1.97 and 16.91, respectively. In addition, its trailing-12-month Price/Sales ratio of 0.16 compares to the industry average of 1.30.
The stock’s trailing-12-month ROCE of 37.50% is significantly higher than the 2.96% industry average. Likewise, its trailing-12-month CAPEX/Sales of 25.89% is 628.2% higher than the industry average of 3.56%.
In the fourth quarter, which ended on December 31, 2022, VEON’s total adjusted EBITDA increased marginally from the prior-year period to $453 million. The company’s operating profit and net profit amounted to $246 million and $217 million, respectively, in the same period. Its total cash and cash equivalents came in at $3.10 billion, representing an increase of 37.9% year-over-year.
In addition, for the fiscal year 2022, its mobile subscribers and 4G users grew 2.7% and 19.4% from the year-ago values to 160.50 million and 84.60 million.
The stock has gained 98.3% over the past six months to close the last trading session at $18.
VEON’s POWR Ratings reflect its solid prospects. The stock has an overall A rating, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Value and a B for Sentiment and Quality. Within the same industry, it is ranked #2 out of 47 stocks. Click here to see the additional ratings for VEON (Growth, Stability, and Momentum).
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VIV shares were trading at $7.61 per share on Wednesday afternoon, up $0.01 (+0.13%). Year-to-date, VIV has gained 8.69%, versus a 6.97% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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