TeliaSonera (TLSN.ST): Expensive relative
to peers; cutting estimates to reflect EM
risks
Company Name: TeliaSonera Ticker: TLSN.STPrice:
37.6 52-Week Price Range (Skr): 57-32
Year Net EPS . . Gross
To Income Diluted Dividend P/E Yield
December Skr Skr Skr X .
2007 18,825.00 3.94 4.00 9.54 10.64
2008 19,011.00 4.41 1.80 8.53 4.79
2009E 17,897.04 4.21 2.00 8.93 5.32
2010E 18,976.04 4.36 2.10 8.63 5.59
2011E 19,845.44 4.55 2.20 8.26 5.85
Price Performance (absolute): 1m: -5% 3m: +1% 12m: -21%
Price Performance (relative): 1m: +5% 3m: +14% 12m: +14%
Stock Rating: N
What's changed
We are lowering our earnings forecasts for TeliaSonera by over 10% to reflect a number
of factors: 1) We now expect flattish local currency growth at Megafon in 2009 and only a
slight recovery in 2010, consistent with our cautious Russian forecasts for
MTS/Vimpelcom. 2) Turkcell estimate reductions reflect margin pressure in Turkey and a
deteriorating macro environment in Ukraine. 3) The depreciation of the Skr leads to
substantial upwards revisions to revenue forecasts, although we take a more cautious
approach to the EBITDA margin outlook given macroeconomic pressures and dilution
from rapid mobile broadband access growth in highly competitive Scandinavian markets.
4) The net effect is broadly neutral at the EBIT level, but higher tax and interest forecasts
drive sharp EPS downgrades. Our new forecasts (ex restructuring) are c.4% below SME
Direkt consensus for FY2009/10.
Implications
On our new numbers, valuation looks less attractive than peers and we retain our Neutral
rating. TeliaSonera is trading at 5.5x consolidated/4.6x proportionate 2009E EV/EBITDA
vs. the sector average of 4.5x consolidated EV/EBITDA, and offers a relatively low
(albeit very secure) c.5% dividend yield, compared to the sector average of 8%. While we
believe that the company has a stronger balance sheet and superior long-term growth
prospects than the sector average, this is offset in our view by uncertainty over the
dividend stream from Megafon and high macroeconomic and political risks in emerging
markets (c.49% of proportionate EBITDA).
Valuation
Our SOTP-based 12-month price target falls slightly to Skr41.1 from Skr41.2; we value
Megafon at 3.0x EV/EBITDA, in line with peers.
Key risks
The key downside risks include emerging markets exposure and future potential M&A
investments.
The Goldman Sachs Group Inc. does and seeks to do business with companies covered in
its research reports. As a result, investors should be aware that the firm may have a
conflict of interest that could affect the objectivity of this report.
Investors should consider this report as only a single factor in making their investment
decision.
March 13, 2009 Analyst Comment
2 Goldman Sachs Global Investment Research