Nomura ups European telecoms to 'bullish'; points to consolidation triggers

Nomura upgraded its stance on the European telecoms sector to ‘bullish’ from ‘neutral’ on Tuesday.

“Market repair in recently consolidated markets is increasingly evident,” it said. “Progress in Spain and Germany is coming through ahead of expectations, setting an encouraging precedent for other markets to follow.”

It said that mobile data monetisation has been slow to date, as consumers need to be consuming plentifully before they recognise the utility of mobile video, and are likely to commit to higher data tiers. 4G adoption remains relatively slow in Continental Europe.

However, Nomura added it’s a matter of time before we see improving evidence of data monetisation against a backdrop of stable, if not improving, competitive conditions.

“Advanced markets (such as Sweden) set an excellent precedent,” the broker explained to clients.

The Japanese bank said that deal premiums and earnings upgrades can drive the sector rating higher.

“An active consolidation environment will lead to deal premiums that can buoy asset valuations across the sector, and we sense improving prospects for a structural inflection of the earnings cycle (after more than a decade of steady downgrades),” the Japanese broker noted.

Nomura’s top picks in the sector are Vodafone and Deutsche Telekom, which it upgraded to ‘buy’ from ‘neutral’, Iliad, Telenet and Orange, all of which it rates at ‘buy’.