LIVE MARKETS-European telcos at a structural inflection point

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EUROPEAN TELCOS AT A STRUCTURAL INFLECTION POINT

Europe's telecoms sector has lagged the market for years, but BCA Research believes the outlook is finally brightening.

Since European equities bottomed in March 2009, the telecoms sector .SXKP has been the worst performing in Europe, rising only 24% in that time, versus a near 240% increase for the benchmark STOXX 600 .STOXX.

"The performance of European telco stocks has been disastrous because their market remains too fragmented and competition is brutal," write BCA Research analysts, led by Mathieu Savary.

But that could soon change. Savary expects merger rules in the European Union to loosen, paving the way for cross-border consolidation.

"That shift would lift profitability and spark a round of M&A that reduces free float and embeds takeover premia across many names," Savary adds.

Valuations are compelling, Savary notes, with the group's enterprise value/EBITDA multiple down to 5.9, a 33% discount compared to other defensive sectors.

"After more than fifteen lean years, European telecom shareholders finally have a credible path to sustained value creation," Savary says.

"The sector offers both near term resilience and a clear catalyst for structural re-rating."

(Samuel Indyk)

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