Nokia (NOK) is a battered stock that trades at very low valuations. BMO analyst Tim Long thinks the company has no value beyond its cash and patent portfolio. Based on this sentiment, a rough sum-of-parts estimate for Nokia was created. Nokia shares are trading well below their intrinsic value.
Nokia's patents are estimated to be worth $7.5 billion.
In 2012, Nokia's brand value fell off Millward Brown's 2012 BrandZ Top 100 Brands List. To be conservative, we can ignore its value.
Book Value of Equity
Any book values associated with goodwill or intangible assets can be stripped out of the balance sheet so that their economic estimates can be added back in later:
Nokia Balance Sheet (IFRS € millions)
Capitalized development costs
Other intangible assets
Property, plant and equipment
Investments in associated companies
Deferred tax assets
Long-term loans receivable
Other non-current assets
Prepaid expenses and accrued income
Current portion of long-term loans receivable
Other financial assets
Investments at fair value
Available-for-sale investments, liquid assets
Available-for-sale investments, cash equivalents
Bank and cash
Equity Attributable NOK Shareholders
As of the second half of 2012, the adjusted value of Nokia's net assets attributable to common shareholders was € 2.97 billion. (Note that some of the equity value belongs to minority interests and must be left out when trying to value NOK shares.)
Sum of Parts
Adding adjusted net asset value in dollars (as of this analysis, the Euro was trading at about $1.28), estimates for the intellectual property portfolio, and brand value provide a total that is slightly more valuable than the current market capitalization of NOK common shares:
Estimated Value ($USD Billions)
NOK Shares Adjusted Net Asset Value
Discount to Sum-of-Parts
This analysis is reasonable, but might be aggressive. Though we left out brand value, the liquidation value of assets might be much lower than their book values. What if liquidation losses overshadow any brand premium Nokia could fetch in liquidation?
The solution to this problem (and so many others) is money. If NOK shares fall further, we can stop wondering about whether the 11.5% discount estimate is a little too high or a little too low. The crudeness of this analysis can easily be outweighed by significantly lower prices.
Many value investors consider a 30% discount to be an acceptable margin of safety before investing. This is an arbitrary value which they tend to require for investments with stable going concerns. Nokia is under threat and should require a deeper discount before it can be unequivocally be labeled a sum-of-parts value play.
Rather than assign arbitrary values for you, here are NOK share prices and sum-of-parts discounts associated with them:
I recently published an estimate that shows how like Research In Motion (RIMM) is a sum-of-parts value play. It trades at a deep (like 70%) discount to its tangible and intangible value. At current prices, the same cannot be said for NOK shares. In fact, NOK shares would have to drop below a dollar before they become as attractive on a sum-of-parts valuation basis.
Even if NOK shares do drop in price and its sum-of-parts discount grows, do not make this a sizeable position in your portfolio. Please, please, please do not bet the farm on anything, especially not a firm that is currently in decline. Instead, as a value investment, consider allocating a small portion if the price is right.Disclaimer: This article was written to provide investor information and education, and should not be construed as a guarantee or investment advice. I have no idea what your individual risk, time-horizon, and tax circumstances are: please seek the personal advice of a financial planner. This article uses third-party data and may contain approximations and errors. Please check estimates and data for yourself before investing. Moreover, this research does NOT constitute a guarantee.