Two safe haven stocks from the telecoms sector – MoneyWeek

Infact,thetelecomssectorlookstheidealsafehavenamidthesubprimeblowout。

AsVittorioFegitzofRBCAssetManagementtellstheNationalPost,“ithastakenEuropeantelecomssevenyearsjusttorepairtheirbalancesheetsfollowingtheexpansionexcesseswhichcametoaheadin2000”。

Thehangoverfromthetechblow-outensuredthattelecomshaveplayednopartinthedebtbingethathasfuelledmarketsinrecentyears。

So,lightondebtandwithafewyearsofsuccessfulconsolidationundertheirbelt,telecomsarelookingleanandbattle-hardened。

Thetraditionalfixed-linephonebusinessmightbeshowingitsage,butexpandingintothemobilephoneandbroadbandsectorshasbreathednewlifeintotelecoms。

TheprospectsforgrowthinthesebusinessesmightbewitheringnowthattwointhreehousesintheUKhasabroadbandconnection,buttelecomshavediscoveredarichrevenuestreambycross-breedingthetwo。

Bigthingsareexpectedof“Triple-play”,whichoffersphone,broadbandandTVinonesystemforyourhome。

Butmeanwhile,revenuesfromoffering“mobiledata”–sendingtextsandsellingringtones–aregrowingby30%-40%ayearamongEuropeantelecomsandwillcontinuetodosointheyearsahead,saysCitigroup。

BeyondEurope,growthprospectsformobilephonesinemergingmarketsarehuge。

Intheabsenceofold-fashionedlandlineinfrastructure,BraziliansandIndianshavebeenasquicktoadoptnewtechnologiesasthemorematuremarketsinEurope。

Infact,emergingmarketsthathavebeenusingfixed-linephonesareswitchingtomobilesanyway。

InNovemberalone,Chinaaddednearlyeightmillionmobilesubscribers,whilelosing1。

3millionfixed-lineusers,saysTeroKuittinenonTheStreet。

com。

Since2001,emergingmarketshaveadded660millionnewmobilesubscribers,saysUKtelecomswatchdogOfcom,accountingfor40%ofnewmobileaccountsglobally。

Butthere’salongwaytogo–wemightallhaveamobileintheUK,butonly50%ofBrazilianshavemobiles,andChina(34%)andIndia(14%)areespeciallyripeforgrowth。

Vodafone,whichtookabigstepintotheIndianmobilemarketearlierthisyearwiththetakeoveroflocalmobileoperatorHutchEssar,thinksthatover40%ofIndia’spopulationwillhaveoneby2012。

Asthesemarketsmature,mobileusersinLatinAmericaandAsiawillnodoubtdiscoverthesamefascinationwithmobiledataand“playful”ringtonesthatweunaccountablyenjoyhereintheUK。

InChina,wherecheaptextstrumpvoicecalls,themobilecontentmarketisalreadythoughttobeworth$10bn。

Growthprospectsaside,whattelecomsofferisasteadycash-flowstream–goodnewsatatimewhendebtismuchhardertocomeby。

Safestofallarelarge-capsinthesector,saysCitigroup–preferablywithemerging-marketexposure。

Europeantelecoms(seeboxbelow),withlittleornoexposuretotheplungingdollar,lookthebestbet。

Thetwobestbetsinthetelecomssector

OnelargecapthathasplentyofexposuretoemergingmarketsisTelefonicaSA(NYSE:TEF)。

TheSpanishgiantistheworld’slargestmobile-phoneoperatorandprovidestelecomservicestoEurope,AfricaandLatinAmerica,whereithasadominantmarketposition。

WillFrankenhoffofMotleyFooldescribesthestockasa“growingbond”–thecompany’ssolidEuropeanbusinesssuppliesthebondcomponent,whilegrowthprospectsinwirelessandmobiletelephonyinLatinAmericaofferearningsgrowth。

Telefonicaisexpectedtoproduceearningspersharegrowthof23%in2008and14%in2009,accordingtoRBC’sFegitz。

Andwithaprice-to-earnings-growthratioof0。

5for2009,you’regettingthatearningsgrowthprettycheaply。

Ittradesonaforwardp/eof8。

4for2009,accordingtoDigitalLook,offeringaveryattractivedividendyieldof5。

2%。

Closertohome,CitigroupanalystslikethelookofmobilegiantVodafone(VOD)。

Thecompanyisrestructuringatthemoment,butitsrecentmovesintoTurkey,andparticularlyIndia,distinguishesitamongtheemerging-marketplays。

Growthincashprofitsisexpectedtotop30%ayearinthenextfiveyears。

Vodafoneisvaluedonaforwardp/eof13。

3for2010,andpaysa4。

6%dividendyield。

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