Telefónica Investor Day, this Wednesday, is a crucial event with which the company chaired by José María Álvarez-Pallete intended to present the business roadmap for the period 2023-2026 and convince analysts and investors that it is in willingness to generate a value that the stock has been losing since the president took office, with a decrease of 60%.
Current events have been responsible for disrupting the plans that Telefónica may have had at the time of the call for this event, which it had not held for more than a decade. During his speech, Álvarez-Pallete will try to follow his ideal script, but he will have to give everything to answer the analysts' questions in one of the most turbulent times for the company and the sector in recent years.
“On the financial side, it must present projects that support the hope that growth in the value of the company can be expected and not just divestments to reduce debt,” says Nicolás López, director of Variable Income analysis at Singular Bank.
The price increase policy that had been started last year to shelter from the increase in inflation has helped improve margins, but the purchase of Vodafone by the British fund Zegona could turn the market upside down, even on the customer side. premium and wholesalers, which forces a change in strategy.
Debt, a classic concern about this company, will also play a leading role. During Álvarez-Pallete's mandate it has been reduced from more than 40,000 million euros in 2016 to 27,479 million last July. The purchase operation of its German subsidiary, announced this Tuesday, disrupts this indicator. Although the subsidiary's debt is low, Telefónica has committed to paying almost 2,000 million that will have to increase its debt. “It remains to be seen how this feels in the market,” warns López.
Investors in the company could put aside this increase somewhat if Telefónica is able to convince them, as was said this Tuesday, that the operation is strategic as far as the dividend is concerned. That is, if the savings of paying a dividend to an external partner as was the case in Germany and including it in the group's dividend compensates enough. “Until now the profit of 0.30 euros per share exceeds the cash flow and that is not sustainable in the long term. It must present a business model capable of generating recurring income (cash flow) with which to balance this situation,” says López.
The environment also has doubts about the future of two of the four legs that it defined in the 2019 strategic plan: Hispam and Tech. The first encompasses the least attractive assets on the continent of Latin America (Brazil is left out) and that in the 2019 they went on sale. Some have been the target of these divestments but others still remain in the company's portfolio waiting for a buyer who will generate profits. While this is happening, Telefónica focuses on management that gives it value. Will it continue to be this way in the coming years?
In the case of the Tech division, the opposite occurs. It was created in 2019 to encompass the most advanced businesses such as artificial intelligence, cybersecurity... and has become the jewel in the crown. To such an extent that the STC fund stated when it became a shareholder in Telefónica last September that it was one of its main attractions. The market wants to know in detail the future of Tech. Will Telefónica let a financial partner in? Do you intend to sell?
But beyond the purely business-related aspects, there is no doubt that the company's leadership will have to deal today with the more political aspects of its future. Among them, you will be asked for explanations about the entry of the Saudi sovereign fund into the company through STC with 9.9% of the capital.
“Those who know the actions of Middle Eastern funds know that it is only a financial operation to capture the maximum possible return on capital, without any interest in taking control because they know that they are going to be left,” explains Jaume Puig, general director of GVC Gaesco Management.
The Spanish Government is not so clear that a few weeks ago it confirmed that the SEPI is studying the entry into the capital of Telefónica to ensure the "Spanishness" of the company. Will the president of Telefónica be able to clarify this issue? If not, how will analysts and markets react? The answer, today.
