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Danilo Masoni
MILAN (Reuters) – A potential series of deals across Europe’s fragmented telecoms industry has drawn attention to the battered sector as consolidation could help boost profit margins.
European telecom stocks are at record lows relative to the market after years of investors ignoring a market dominated by giant stocks that offer bigger returns.
Since the beginning of 2000, the market capitalization of Europe’s telecom industry has fallen sixfold to $270 billion.
“We strongly believe that M&A can bring attention to an equity sector that has been completely forgotten,” said Fabio Caldato, portfolio manager at investment firm Acomea SGR.
“We are building our position,” he added. “We may end up with cross-border M&A that reduces competition and increases margins for carriers.”
Vodafone this week announced exclusive negotiations to sell its Italian unit to Swisscom for 8 billion euros ($8.7 billion), with the possibility of other deals.
Fabio Pavan, analyst at Mediobanca Securities, said the partnership will create a group with more than 30% share in both the fixed and mobile markets in Italy, the third most populous country in the European Union. “It was a step in the right direction,” he said.
“The telecom sector continues to show a strong need for relief. M&A is the only effective way to start a virtuous cycle of price growth,” Pavan said.
The sector has been plagued by many players vying for market share while facing expensive network upgrades to meet growing data demands. Analysts say industry consolidation could end price competition, allow companies to reduce administrative costs and create synergies from sharing technology and infrastructure.
Telecom Italia will sell its fixed-line network to private equity investor KKR for up to 22 billion euros in a “game-changing” deal, with BofA analysts saying the Italian group will “get rid of its debt shackles” I believe it will be useful for
Orange and Masmobile received conditional approval from Brussels in February for an 18.6 billion euro partnership in Spain, while privately held telecoms group Iliad was merged by its lead investor, French billionaire Xavier Niel. acquired a $1.3 billion stake in Sweden’s Tele2. .
Cardato said there could be opportunities in telecoms markets in France, Spain, Italy and the UK, particularly in markets where companies have spent the majority of their capital expenditures on network upgrades.
A European Commission document suggests regulators could ease merger rules, but Brussels antitrust chief Margrethe Vestager said last week that no such move was being considered. Stated.
Investors remain chronically underweight in European telecom stocks, but data from Morgan Stanley’s $1.2 trillion fund shows positioning is trending upwards. . The proportion of global funds overweight telecoms reached 31%, the highest level since at least December 2013.
Over the past year, Europe’s telecom industry has fallen by 8%, underperforming by 17 points compared to the region-wide STOXX 600 index. According to LSEG data, the stock is trading at a 7% discount to the market on a forward P/E basis.
(1 dollar = 0.9237 euro)
(Editing by Amanda Cooper and Jan Harvey)
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