NOKIA valuation
One way to estimate proper share price for a company is to start from the P/E value.
In case of Nokia good yard stick is Ericsson. Its P/E is forecast to be 17 for this year.
[visit www.nasdaq.com/symbol/eric/pe-ratio/] Ericsson is the top company in telecommunications and usually the top company has the highest P/E ratio and the next ones clearly smaller. Let us say that proper P/E for Nokia compared to Ericsson would be 70%. This would mean roughly 12 for Nokia.
Based on the latest quarterly results and the latest news:
- Networks made 179Meuro profit although annually the 1st quarter is always the worst.
--> My forecast is that Networks will make 1Beuro profit for the whole year. Reasoning is that the re-structuring has been done and now Networks can focus to sales and reap the benefits of the new streamlined organization.
- Technologies made 83Meuro profit. It is important to keep in mind that this was the biggest concern for Chinese and Korean authorities to accept the Microsoft deal because they are now afraid that Nokia will raise its IPR fees. Now that the Microsoft deal is done Nokia for sure will start to do all it can to get as much as possible revenue out of those IPR. It is good to note that compared to the company which has the highest IPR cost, Qualcomm, Nokia has much lower IPR license fees. Another point to note is that Nokia has very many patents which have not been licensed at all individually because that mass has been part of the cross licensing deals with other mobile phone manufacturers but now Nokia has the situation where it does not need other mobile phone vendors patents but they need Nokia's.
--> Because of all this I expect clear increase in the licensing revenue which will be almost one to one also profit because the licensing does not need a lot of people. My forecast is that Nokia IPR licensing revenue will reach 1Beuro from the current 600Meuro estimate and the profit being around 80%. Reasoning for a number as low as 80% is that most probably Nokia will also start to purchase some IPR and develops this business further. Result being that the profit would be roughly 800Meuro
- Here is still in the investment phase but the position has been well established among car manufacturers and that is a solid base line on which to build this business.
--> My modest profit estimate for this unit is 300Meuro.
In sum, this will mean that Nokia will make 2.1Beuro profit from year 2014
and with P/E of 12 then the Price should be around 6.7euros. This week Nokia share has increases already to around 5.8euros. There is still 16% increase to go this year. Because of all this my recommendation is Strong Buy.
Starting from different P/E value, the result will be different.