More than ten percent plus in four weeks: why the Deutsche Telekom share is currently doing so well

Telekom share with clearly positive performance
Pricing power takes the fear out of the specter of inflation
Good conditions despite the threat of interest rate increases

Deutsche Telekom shares lost more than five percent on February 24, 2022, the day war broke out in Ukraine. In the first week of March, the share certificate even fell below the EUR 15 mark at times and marked a new 52-week low at EUR 14.47. A clear crash in the summer of 2021: At that time, a Telekom share had cost just under 19 euros at times.

But since then, a clear recovery course has set in – the Telekom share has gained more than ten percent in the last four weeks. This is also due to the fact that inflation is affecting the Magenta group significantly less than many other companies.

Deutsche Telekom with pricing power

Because in an inflationary environment, in which costs sometimes rise significantly, companies often only have one choice: price increases. While this may lead to a loss of customers in a competitive environment, particularly in the case of some industrial companies, this is not to be expected at Deutsche Telekom. In Germany, the Bonn group is by far the market leader – both in the fixed network and in the mobile communications sector. Meanwhile, competitors such as Telefonica, 1&1 Drillisch and freenet are fighting for the remaining market shares.

David Wright, an analyst at the US investment bank Bank of America, sees more scope for fee increases in Deutsche Telekom’s home market than in Italy and Spain. Germany is “one of the more stable markets in Europe when it comes to price increases,” said the expert recently.

Telekom’s strong market position also gives the company pricing power, which is why the margins of the DAX group should probably be less burdened than those of the competition, despite rising inflation.

Selling the radio towers should flush billions into the coffers

While the BoA analyst missed a price target of EUR 24.80 for Telekom shares a few weeks ago, industry colleague Stan Noel from Bernstein Research is only slightly below at EUR 24.60. Noel refers in particular to the possible upcoming sale of the radio towers. The sale of GD Towers, Europe’s third-largest radio tower company, would be “a big deal” for the Bonn-based company. Telekom is currently examining options for the company – Noel sees Cellnex and infrastructure funds as having the best chances of acquiring GD, which he estimates to be worth EUR 18 billion. Financial investors such as EQT and a merger of KKR and GIP are said to have expressed interest, it was said recently. Vodafone with its listed subsidiary Vantage Towers and American Tower from the United States are said to want to participate in the bidding race.

Well positioned despite rising interest rates and high levels of debt

The rising interest rate environment is also likely to cause less trouble for Deutsche Telekom than for many other companies. The DAX group is heavily indebted – according to the balance sheet, at the end of 2021 the net financial liabilities increased by 58.1 percent to 120 billion euros. Rising interest rates will therefore initially increase financing costs.

However, the short-term refinancing requirement for the DAX group is “rather low,” emphasizes Ralf Anders, an investment analyst who contributes to the Motley Fool (CMFCondorEye). Telekom finances itself “predominantly through bonds and other securitized interest-bearing securities. And these are spread out nicely over the next 38 years,” according to the expert. In the event of a deterioration in credit conditions, short-term refinancing needs can be covered by operating cash inflows, writes Anders.

In addition, the potential proceeds from the sale of the radio towers could significantly reduce Telekom’s mountain of debt.

Telekom in demand as a dividend stock

The fact that dividend stocks are very popular with investors, especially in times of high inflation, has recently proved to be an additional price support. At the Annual General Meeting in April, a decision is to be taken to increase the dividend by EUR 0.04. For the 2021 financial year, investors are to receive EUR 0.64 per dividend-entitled share.

Given the current inflationary background, Telekom shares in investor portfolios could have a stabilizing effect.

Editorial office finanzen.net

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