Banc Sabadell | America Movil would be open to explore options to buy Telefonica’s (TEF) assets in Latin America, according to statements from its CEO and CFO that have appeared in the press. It is worth mentioning that it was already leaked that Telefonica had hired several investment banks to try to accelerate the sale of its subsidiary HispAm to before June 2020.
The idea would be to sell a majority stake to an industrial partner (there is talk of Millicom and Liberty and America Movil as well according to this last information) and valuations would be between 11 and 13 billion euros for 100% of the assets. In addition, it has also recently been leaked that a consortium of Latin American investors is considering forming a holding company to take a stake of 51% of Telefónica HispAm, while, according to their proposal, the remaining 49% would be shared between other smaller shareholders and Telefónica itself (with a stake of 20-25%). In this way, and according to the this information, Telefónica would obtain liquidity of at least 10 billion euros by selling 80/75% (100% valuation of between 12.5 and 13.3 billion euros vs. 12.2 billion euros BS(e)).
The sale of Telefónica HispAm would be one of the options under consideration following the new strategic plan of November 2019, in which Telefónica already stated its intention to seek alternatives to maximize the value of its LatAm assets, which were no longer core to the group. We believe that corporate moves of this magnitude would clearly act as a catalyst for a highly punished share (6.25 euros/share).
According to our estimates, Telefónica HispAm (LatAm ex Brazil) represents 13.3% of the company’s equity value or 12.2 billion euros (valued at 4.9x EV/EBITDA). Therefore, a sale of all assets (which weigh approximately 15% of the group’s EBITDA) would reduce leverage by -32% and leave the DFN/EBITDA ratio <2x (vs. 2.46x at 9 months 2019). Although the valuation discussed in the press would be in line with our estimates, we believe that the best way to monetize the sale of these divisions would be to sell them to different (industrial) operators by region/asset, as this would lead to better valuations due to the synergies that would be obtained in each market.
Banc Sabadell recommends buying Telefonica: (Closing 6.33 euros; Target price 8.50 euros)
