Telefonica’s leadership changes have favoured the company’s stock price. On Wednesday, for the second day in a row, the share price outperformed the Ibex, closing just over the 10 euros level.
Investors are pleased about the continuity in the company’s strategy, as well as its clear bet on new technologies. But they are taking positions in the stock mainly because it’s cheap.
Of the analysts consulted by Bloomberg, 52% recommend a “buy” on Telefonica, while 25% recommend a “hold” and only 23% a “sell.” The market consensus target price is 11.6 euros, which implies a revaluation potential of nearly 15% from the current share price.
Telefonica’s high dividend is also attractive for investors. What we don’t know is how long this payment will be maintained. Most of the international experts consulted bet this dividend will be reduced. Alierta has promised, however, that it would be maintained for at least five years. It implies an annual payment of 3.7 billion euros and an over 7.6% yield, the highest in Europe.
The next dividend of 0.40 euros gross per share is expected mid-May. But the cash payment will depend on the decision taken by the European Competition Authorities in the next few weeks with respect to the sale of Telefonica’s UK subsidiary O2 to Hutchison Whampoa. If the deal is not approved, analysts believe the cash dividend payment will be suspended. Furthermore, the company’s rating could be downgraded as it will be unable to cut its debt pile.
Telefonica also has other pending challenges like strengthening it position in LatAm in order to maintain its market share in the region, which accounts for 56% of group sales. Brazil alone accounts for 28% of sales and its current political situation is hampering the country’s economic recovery.