Telenor ASA Still Has Attractive Valuation

 |  Includes: TELNY, VIP
by: Louis Rhéaume

Nordic telecom operator Telenor ASA (OTCPK:TELNY) provides voice, data, content and other telecommunication services. These include fixed-line, mobile or IP telephony services; fixed-line data services, such as ADSL and fibre-optic communications; and mobile data services, including mobile broadband, GPRS and UMTS. The company also provides TV services via cable, digital terrestrial and satellite networks; mobile content services, such as ring tones, music, movies, sports and mobile TV. In addition, it offers a range of telecom-related services; net-centric services, which include IT security to consumers and enterprises, as well as machine-to-machine services for enterprises; and IT consulting, maritime communications and aircraft communications services.

As of December 31, 2010, the company served approximately 203 million mobile subscribers, including 92 million subscriptions from VimpelCom Ltd.'s (NYSE:VIP) 174 million mobile subscribers. It has operations in Bangladesh, Malaysia, Pakistan, Thailand, India, Denmark, Norway, Sweden, Finland, Hungary, Montenegro, Russia, Serbia and Ukraine. Telenor ASA (OTCPK:TELNY) was founded in 1885 and has its headquarters in Fornebu, Norway.

Recent news

"We were very clear from the start that we didn't like the Vimpelcom deal," Jan Edvard Thygesen, the company's executive vice president and head of Central and Eastern Europe told Reuters this week.

Alfa's and Telenor's stakes have been diluted to 31 and 25 percent, respectively, following approval of the deal. Telenor took legal action to block the move, but a London judge turned down its request, pending the outcome of a separate arbitration case. There is a possibility for Telenor to get out of that stake or look to take control.

With more than 100 million subscribers in Asia, Telenor Group continues to develop and reinforce its position as a leading pan-Asian provider of telecommunication services. Today it controls mobile operations in 5 Asian markets with Grameenphone in Bangladesh, Uninor in India, dtac in Thailand, DiGi in Malaysia and Telenor in Pakistan.

Recent Quarter

In the fourth quarter of 2010, Telenor Group reported revenues of NOK 24.9 billion, representing an organic revenue growth of eight per cent. EBITDA before other items was NOK 7.2 billion, EBITDA margin was 29 per cent, and operating cash flow margin was 14 per cent. For the full year of 2010, Telenor’s revenue was NOK 94.8 billion, EBITDA before other items was NOK 29.2 billion, EBITDA margin was 31 per cent and operating cash flow margin was 19 per cent. Telenor’s consolidated mobile operations added close to eight million subscriptions during the fourth quarter and 23 million during the year.

Outlook for 2011

Based on the current group structure including Uninor and currency rates as of December 31, 2010, Telenor expects:

  • Organic revenue growth above 5%.
  • An EBITDA margin before other income and expenses around 31%.
  • Capital expenditure as a proportion of revenues, excluding licences and spectrum, in the range of 12–13%.

Telenor expects that Uninor will contribute with an EBITDA loss around NOK 4 billion and capital expenditure in the range of NOK 1.0–1.5 billion.

Risks and uncertainties

The existing risks and uncertainties described below are expected to remain for the next three months.

  • A growing share of Telenor’s revenues and profits is derived from operations outside Norway. Currency fluctuations may influence the reported figures in Norwegian Kroner to an increasing extent.
  • Political risk, including regulatory conditions, may also influence the net income.
  • Telenor’s exposure to exchange rates has decreased due to additional borrowings in USD in relation to hedging of net investment.
  • At December 31, 2010, Uninor had NOK 5.2 billion in current interest-bearing borrowings, of which NOK 4.6 billion are with financial guarantees from Telenor ASA.

Key facts

  • Malaysia and Thailand markets did very well in 2010, with very high EBITDA margins.
  • Good diversification: Scandinavia/East Europe moderate growth (50% of 2010 EBITDA) and Asia experiencing high growth.
  • TELNY TTM P/E ratio is 9.9x versus 22.7 for the industry, 25.2 for the sector and 18.7 for the S&P 500.
  • P/S is 1.6, P/B is 1.7, P/CF is 11.7: all much lower than comparables
  • The payout ratio is 28.1.
  • ROA, ROE ROI are much higher than the industry or sector, while total debt is much lower.


TELNY has an attractive valuation for value players and also some 5 years momentum for growth players. Few institutional players own it and TELNY seems not to be very well known by US investors.

Sources: Thomson Reuters, Reuters Provestor Plus company report

Disclosure: I am long OTCPK:TELNY.