Telefónica: Dividend load shedding in HispamBy Ion Jauregui - ActivTrades Analyst
The “strategic review” announced by CEO Marc Murtra focuses on the Hispanic American market, a sector that has shown negative results for years. In 2024, business in countries such as Argentina, Colombia, Chile, Peru and Mexico generated 'red numbers' that reached 2,432 million euros, as gains in Ecuador, Venezuela and Uruguay did not offset the falls in the other markets.
To reverse this situation, Telefónica has accelerated the divestment process in Latin America. In just twenty days, the sale of the Argentine subsidiary brought in extraordinary proceeds of 1,190 million euros. This transaction was closed with no risk of reversal, as the amount was already in the company's cash, and there is no possibility that the Argentinean government, headed by Javier Milei, will modify the transaction. Likewise, last Thursday the agreement for the sale of the Colombian subsidiary was announced. Millicom committed to acquire 67.5% of Coltel (Colombia Telecomunicaciones) for 368 million euros, a transaction pending regulatory permits in that country. 1,558 million, funds that Telefónica plans to allocate to two crucial objectives: debt reduction and consolidation of dividend payments.
If these proceeds are applied in full to the repayment of liabilities, the group's debt could fall by 5.7%, from 27,161 million euros to 25,603 million euros in mid-March. According to several analysts, these divestments will not only avoid future burdens, but will also generate resources for reinvestment in more prosperous markets or sectors. This strategy is in line with the so-called “dead horse theory”, which recommends divesting assets that no longer add value. It is worth noting that Latin America represents 27% of Telefónica's workforce, with 27,570 employees, which means that the exit from this region would imply a significant structural reduction in the organization.
Finally, Murtra stressed at the Mobile World Congress the need for large European telecommunications companies to consolidate and grow in order to strengthen their technological capacity. With this series of operations, Telefónica is not only preparing to improve its financial situation, but is also laying the foundations for a more competitive and efficient future.
If we analyze all this in perspective, it only remains to see that Murtra is seeking to recover the share price value that it has been losing since 2020 when it was trading at 7.592 euros/share. In mid-2022 its highs were at €5.064 and consequently it then fell in price to its lows of €3.237. The range that the company has developed has fluctuated from May 2020 to the present between 4.430 and 3.535 euros/share. 3.923 in the middle zone all this time. The current price after such a disentailment in Spanish America has resulted in a price recovery to 4.347 euros, a value in the upper part of this range. The last few sessions the price has climbed from the middle of the checkpoint after bouncing off the 3.764 level on January 24. This is just a symptom that the strategy of getting rid of the burden since the beginning of the year is only looking for “red numbers” to turn green to ensure this dividend in a very controversial quarterly closing for the Spanish company.
It remains to monitor the evolution of the company's investment strategy for the long term this year, to see if the company regains the path of upward recovery.
*******************************************************************************************
The information provided does not constitute investment research. The material has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and such should be considered a marketing communication.
All information has been prepared by ActivTrades ("AT"). The information does not contain a record of AT's prices, or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information.
Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not reliable indicator of future performance. AT provides an execution-only service. Consequently, any person acing on the information provided does so at their own risk.
