BofA On Telefónica: 3 Meaningful M&A Catalysts

The first-quarter results released by Telefonica S.A. TEF suggest diminishing currency headwinds and easing COVID-19 comps from the second quarter should benefit the company’s organic growth recovery, according to BofA Securities.

The Telefonica Analyst: David Wright maintained a Buy rating for Telefónica, while reducing the price target from 5.40 euro ($6.55) to 5.30 euro ($6.43).

The Telefonica Thesis: The company’s first-quarter results “showed further progressive growth recovery across the group” and across its four core markets of Spain, UK, Germany and Brazil, Wright said in the note.

Telefónica’s EBITDA guidance appears “overly cautious” and may be revised higher in the near term, he added.

Apart from Telefónica’s bright growth recovery prospects, the analyst noted three significant merger and acquisitions related catalysts over the next 12 months:

• UK merger completion in the second quarter, which is expected to be accretive to free cash flows by 2024
• Brazilian consolidation in the fourth quarter, which is expected to be accretive to free cash flows by 2022
• Spanish consolidation

“Investors already receive a 7% dividend with 2022 equity cash yield 10% expanding to a lofty 17% by 2025,” Wright wrote.

TEF Price Action: Shares of Telefónica had risen by 2.39% to $4.93 at the time of publication Friday.

(Photo: Telefonica)