2022 has been a “tale of two halves” for the European telecoms sector, reckon analysts at JPMorgan Chase & Co (NYSE:JPM).
Telcos outperformed in the first half of the year, buoyed by pricing power and mobile consolidation hopes, before unwinding in the second half as leverage and energy cost concerns scaled.
With stock prices at a heavy discount to yearly highs, the new year’s catalysts will either “make or break the buy case” for telco shares, according to JPM.
Potential catalysts include:
- Will UK telcos once again implement consumer price index-linked retail price hikes without regulatory push back, and will other markets directionally follow suit?
- Will Paris-listed telco firm Orange confirm a drop in capital expenditure as its fibre build matures, thereby supporting a major cash flow inflection?
- Will the European Union conclude favourably on both the case for big tech contributing to telco network spend, and pending Spanish consolidations?
Considering the above factors, JPM outlined the following top stock picks:
- Deutsche Telekom AG (DT)
- Infrastrutture Wireless Italiane (INWIT)
- BT Group PLC (LSE:BT.A)
- KPN
- Cellnex Telecom and
- Elisa Corporation
In JPM’s opinion, Telefónica, Telia Company and Eutelsat represent shorting opportunities.
Scrutiny from UK communications regulator Ofcom into the transparency of price rises built into phone and broadband contracts will also factor into BT Group’s risk profile.
BT Group is also slowing the pace of its fibre roll-out amid high inflation and new cost-control targets, though that has not stopped equities analysts at Jefferies from reiterating its 'buy' rating with 250p share price target against the current market price of 120.9p.