Overview: Deutsche Telekom AG (ETR:DTE) is a German multinational telecommunications company operating in more than 50 countries. The company is listed on all major German stock exchanges as well as the OTCQX (USA). Deutsche Telekom is the market leader in the domestic German market and also operates in most European markets. The U.S. brand ‘T-Mobile US’ is one of the fastest-growing wireless companies in the United States.
Catalysts: Deutsche Telekom is strategically well placed in the domestic market (Germany) as well as in key European markets. We expect low single-digit revenue growth and a stable dividend payout ratio. The company declared a dividend of €0.50 for the financial year 2014 with the ex-dividend date on 22nd May 2015. The board aims to grow its dividend per share over the next three years in line with free-cash-flow growth, however, a guaranteed minimum of €0.50 per share applies.
Hurdles: A potential exit of Greece from the eurozone as well as risks associated with the quantitative easing program of the European Central Bank (ECB) are general risks for European equities.
Investment View: Deutsche Telekom offers profitable exposure to the German telecommunications sector. The company is well-positioned in the domestic and European markets and experiences growth momentum in the U.S. The dividend yields 3% at current prices. Incorporating single-digit earnings growth in our valuation our 12-month price target equals €17.50. We initiate coverage with a ‘buy’ recommendation.
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