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1. Company Snapshot

1.a. Company Description

Telefónica, S.A., together with its subsidiaries, provides telecommunications services in Europe and Latin America.The company's mobile and related services and products comprise mobile voice, value added, mobile data and Internet, wholesale, corporate, roaming, fixed wireless, and trunking and paging services.Its fixed telecommunication services include PSTN lines; ISDN accesses; public telephone services; local, domestic, and international long-distance and fixed-to-mobile communications; corporate communications; supplementary value-added services; video telephony; intelligent network; and telephony information services, as well as leases and sells handset equipment.


The company also provides Internet and broadband multimedia services comprising Internet service provider, portal and network, retail and wholesale broadband access, narrowband switched access, high-speed Internet through fibre to the home, and voice over Internet protocol services.In addition, it offers leased line, virtual private network, fibre optics, web hosting and application, outsourcing and consultancy, desktop, and system integration and professional services.Further, the company offers wholesale services for telecommunication operators, including domestic interconnection and international wholesale services; leased lines for other operators; and local loop leasing services, as well as bit stream services, wholesale line rental accesses, and leased ducts for other operators' fiber deployment.


Additionally, it provides video/TV services; smart connectivity and services, and consumer IoT products; financial and other payment, security, cloud computing, advertising, big data, and digital telco experience services; virtual assistants; digital home platforms; and Movistar Home devices.It also offers online telemedicine, home insurance, music streaming, and consumer loan services.The company was incorporated in 1924 and is headquartered in Madrid, Spain.

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1.b. Last Insights on TEF

Telefonica's recent performance has been impacted by foreign exchange headwinds, which affected its sales. The company's Q3 earnings revealed a 45% profit decline. Additionally, there are plans to cut dividends as part of a strategy plan to align with European telecom peers. Despite this, the company reported robust revenue growth in key markets, including Spain and Brazil. Its cost control and divestments support its 2025 outlook and dividend plan. Analysts have revised earnings estimates higher, indicating potential for a trend reversal.

1.c. Company Highlights

2. Telefonica Delivers Strong Q1 2025 Results, Driven by Operational Efficiency and Strategic Progress

Telefonica reported a robust Q1 2025, with revenue growth of 1.7% in Spain, supported by strong commercial momentum and record TV net adds. Brazil maintained its leadership with 6% revenue growth above inflation, driven by higher ARPU and fiber adoption. Germany saw stable profitability, while the UK’s Virgin Media O2 improved ARPU and EBITDA margins. The company’s net debt decreased to €25.8 billion, with a net debt-to-EBITDA ratio of 2.67x, reflecting improved financial flexibility. Telefonica reiterated its 2025 guidance, with revenue, EBITDA, and free cash flow expected to grow.

Publication Date: May -14

📋 Highlights
  • Strong Financial Performance: - Telefonica reported 1.7% revenue growth in Spain and 6% in Brazil, with EBITDA growth driven by operational efficiencies.
  • Fiber and 5G Rollout: - Fiber coverage exceeded 1.5 million premises, while 5G reached 75% in core markets, enhancing network capabilities.
  • Customer Satisfaction and Growth: - Spain led customer satisfaction, with Brazil and Germany showing consistent improvement, supported by record TV net adds.
  • Financial Health: - Net debt reduced to €25.8 billion, with a net debt-to-EBITDA ratio of 2.67x, and free cash flow guidance stable at €2.85 billion.
  • Strategic Initiatives: - Hispam operations sold for €1.2 billion, and ESG efforts include 30% renewable electricity and 7.8 million cyber threats blocked in Spain.

Operational Highlights and Network Transformation

Telefonica’s operational performance was underscored by significant progress in network transformation. Fiber rollout exceeded 1.5 million premises, and 5G coverage reached 75% in core markets. Customer satisfaction reached new highs, with Spain leading, while Brazil and Germany showed consistent improvement. The shutdown of legacy services, including copper in Spain and 3G in Germany, contributed to operational efficiency. As CFO Emilio Rodriguez noted, "Our focus on customer-centricity and technological excellence is driving both top-line growth and margin expansion."

Strategic Initiatives and ESG Commitment

Telefonica’s strategic review is ongoing, with a focus on customer-centricity, technology excellence, and value creation for stakeholders. The company sold its Hispam operations, including Argentina for €1.2 billion, Peru, and a binding agreement for Colombia, reducing exposure and improving free cash flow. ESG initiatives were also highlighted, with 30% of electricity now coming from renewables and 7.8 million cyber threats blocked in Spain. These efforts underscore Telefonica’s commitment to sustainability and digital security.

Valuation and Strategic Outlook

With a P/E Ratio of -496.06 and a P/B Ratio of 1.26, Telefonica’s valuation reflects the market’s optimism about its turnaround strategy. The company’s EV/EBITDA of 4.75 and a dividend yield of 6.96% highlight its attractive risk-reward profile. The ongoing strategic review aims to optimize capital allocation and maximize shareholder value, with a focus on organic growth in core markets and maintaining leadership in Brazil.

Q&A and Future Outlook

During the Q&A session, Telefonica addressed several key topics, including the paused NetCo process in the UK and the continued focus on fiber expansion. In Spain, the company emphasized organic growth and maintaining commercial momentum. The free cash flow guidance remains stable, with disposals in Argentina and Peru enhancing financial flexibility. The strategic review is expected to conclude in the second half of 2025, with a focus on optimizing capital structure and maintaining strict capital allocation policies.

3. NewsRoom

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Telefónica (BME:TEF): Exploring Valuation After Recent 17% Share Price Drop

Nov -29

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Telefonica Scores Provisional Rights to Spain’s Soccer League La Liga

Nov -28

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Telefonica Germany & Nokia Ink a 5-year RAN Deal to Advance 5G Rollout

Nov -27

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4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (0.50%)

6. Segments

Telefónica Spain

Expected Growth: 3.0%

The Spanish market is expected to drive growth, with a focus on fiber-optic deployment, 5G rollout, and increasing demand for digital services, offsetting declining voice and SMS revenues.

Telefonica Brazil

Expected Growth: 8.0%

Brazil is a growing economy with increasing demand for mobile data and fixed broadband services. Additionally, the company's 5G network expansion will attract more customers and drive revenue growth.

Telefónica Hispam

Expected Growth: None%

None

Telefónica Germany

Expected Growth: 4.0%

The German telecommunications market is highly competitive, but Telefónica Germany is expected to grow moderately due to its established brand presence and continuous investments in network infrastructure and digitalization, enabling it to offer innovative services and improve customer experience.

Other Companies

Expected Growth: 0.4%

The diverse nature of 'Other Companies' suggests a cautious growth outlook. While some businesses may grow, others might not, resulting in a moderate overall growth rate slightly below the global hypothesis due to the uncertainty and diversity of these investments.

Eliminations

Expected Growth: None%

None

7. Detailed Products

Movistar+

A subscription-based streaming service offering a wide range of TV channels, movies, and original content.

Fibre Broadband

High-speed internet connectivity using fibre-optic cables, providing fast and reliable internet access.

Mobile Plans

A range of mobile phone plans offering varying amounts of data, minutes, and texts, with options for individuals and businesses.

Cybersecurity Services

A suite of security solutions protecting individuals and businesses from cyber threats, including antivirus software and threat detection.

IoT Solutions

A range of Internet of Things (IoT) solutions enabling businesses to connect and manage devices, sensors, and machines remotely.

Cloud Services

A range of cloud-based services, including infrastructure, platform, and software as a service, for businesses and individuals.

Big Data Analytics

A suite of big data analytics tools and services helping businesses to collect, process, and analyze large datasets.

8. Telefónica, S.A.'s Porter Forces

Forces Ranking

Threat Of Substitutes

Telefónica faces moderate threat from substitutes, such as VoIP services and messaging apps, which can replace traditional voice and messaging services.

Bargaining Power Of Customers

Telefónica's customers have high bargaining power due to the availability of alternative service providers and the ease of switching between them.

Bargaining Power Of Suppliers

Telefónica's suppliers, such as network equipment providers, have low bargaining power due to the company's large scale and negotiating power.

Threat Of New Entrants

The threat of new entrants is low due to the high barriers to entry in the telecommunications industry, including the need for significant capital investment and regulatory approvals.

Intensity Of Rivalry

The intensity of rivalry in the telecommunications industry is high, with multiple players competing for market share and customers.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 76.61%
Debt Cost 4.24%
Equity Weight 23.39%
Equity Cost 7.52%
WACC 5.01%
Leverage 327.58%

11. Quality Control: Telefónica, S.A. passed 2 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Stock-Card
Orange

A-Score: 7.2/10

Value: 6.3

Growth: 3.9

Quality: 4.4

Yield: 9.4

Momentum: 9.5

Volatility: 9.7

1-Year Total Return ->

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Stock-Card
AT&T

A-Score: 7.0/10

Value: 7.1

Growth: 2.6

Quality: 5.7

Yield: 9.0

Momentum: 8.5

Volatility: 9.3

1-Year Total Return ->

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Stock-Card
Deutsche Telekom

A-Score: 6.7/10

Value: 7.5

Growth: 6.2

Quality: 5.6

Yield: 5.6

Momentum: 6.0

Volatility: 9.0

1-Year Total Return ->

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Stock-Card
Telefónica

A-Score: 6.3/10

Value: 8.6

Growth: 1.8

Quality: 4.2

Yield: 9.4

Momentum: 4.0

Volatility: 9.7

1-Year Total Return ->

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Stock-Card
Vodafone

A-Score: 6.1/10

Value: 9.4

Growth: 1.2

Quality: 2.0

Yield: 8.8

Momentum: 7.5

Volatility: 8.0

1-Year Total Return ->

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Stock-Card
Swisscom

A-Score: 6.1/10

Value: 5.0

Growth: 2.8

Quality: 6.4

Yield: 6.9

Momentum: 5.5

Volatility: 10.0

1-Year Total Return ->

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

3.67$

Current Price

3.67$

Potential

-0.00%

Expected Cash-Flows