LIVE MARKETS-Why Europe's telcos are winning (It's not earnings)

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WHY EUROPE'S TELCOS ARE WINNING (IT'S NOT EARNINGS)

Telecoms .SXKP have quietly emerged as one of the best-performing sectors in Europe this year. However, this success does not appear to stem from any meaningful improvement in their underlying earnings prospects.

After many years of underperformance, analysts at Citi highlight that the sector is building on a strong 2024 performance, having so far delivered a total return of almost 20% this year.

"Rather than being due to any operational or long-term improvement in outlook, we believe this outperformance is driven by two main factors: 1) the defensive nature of telecoms and its lack of exposure to broader macro and geopolitical factors... and 2) increased hopes of in-market consolidation," they write.

While their defensive appeal seems largely uncontroversial, Citi has detected varied perceptions on potential M&A, following recent meetings with 14 companies and regulators.

Some telecom players await clearer regulatory signals before pursuing deals, Citi says, while others express more optimism.

Regulators, in contrast, consistently stressed that merger decisions must be evidence-based and can face legal challenges.

Regulators in Brussels in particular still favour structural remedies and cross-border deals, while noting studies show a reduction of mobile operators to three from four tends to raise prices without increasing investment, Citi says.

(Danilo Masoni)

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