Deutsche Bank (ETR:DBKGn) has resumed coverage on Swisscom AG (SCMN: SW) (OTC: OTC:SCMWY), issuing a Hold rating and setting a price target of CHF570.00.
The coverage reinitiation follows a period during which the bank had a Sell rating on the company as it headed into 2024.
The change in stance is attributed to Swisscom's advanced acquisition of Vodafone (NASDAQ:VOD) Italia, which is expected to significantly increase the company's free cash flow (FCF) from fiscal year 2025.
The analyst from Deutsche Bank had previously expressed skepticism about Swisscom's prospects due to factors such as an anticipated slower decline in Swiss interest rates compared to other regions, the company's valuation relative to its peers, and a lack of catalysts.
These catalysts were expected to benefit competitors engaged in market and balance sheet repair. However, the potential acquisition of Vodafone Italia was identified as a factor that could increase Swisscom's FCF by more than 30%.
Despite earlier pushback on the likelihood of the acquisition, the transaction is now well underway. Deutsche Bank has incorporated the impact of this acquisition into its forecasts, anticipating a more than 40% increase in Swisscom's FCF by fiscal year 2028 compared to fiscal year 2023. This projection is seen as supportive of the company's valuation and is particularly favorable for Swiss investors interested in dividends.
In other recent news, Swisscom AG, a leading telecommunications company, has reported positive Q2 2024 results, demonstrating a 1.8% increase in revenue, driven significantly by a 7% growth in Italy.
The company confirmed the sale of its FiberCop stake for €439 million and the acquisition of Vodafone Italy, marking a significant expansion in the Italian market. These developments align with Swisscom's strategic priorities for 2024, which emphasize customer satisfaction, innovation, cost savings, and collaboration.
Fastweb, a subsidiary of Swisscom, is also making strides in the Italian mobile market and is focused on expanding its coverage. Swisscom is expected to finalize a transaction with the Italian Competition Authority in Q1 2025, further solidifying its market position. Despite facing some challenges such as intense competition in the Italian fiber market, Swisscom sees growth opportunities, especially in the Italian wholesale segment.
The company maintains its full-year outlook, including net CHF50 million savings, and is committed to expanding its fiber network in Italy, aiming to cover 16 million households by 2024.
InvestingPro Insights
In light of Deutsche Bank's renewed coverage of Swisscom AG, key metrics and InvestingPro Tips provide additional context for investors considering the company's prospects. Swisscom is trading at a P/E ratio of 16.86, which is relatively high when compared to its near-term earnings growth. However, the company has demonstrated stability with low price volatility, and its cash flows are sufficient to cover interest payments, a reassuring sign for debt management and dividend sustainability. Indeed, Swisscom has maintained dividend payments for an impressive 26 consecutive years.
InvestingPro Data underscores the company's financial health, with a market capitalization of $33.71 billion and revenue growth in the last twelve months as of Q2 2024 at a modest 0.38%. The gross profit margin stands strong at 55.13%, indicating efficient cost management. For dividend-seeking investors, Swisscom offers a current yield of 2.38%, despite a recent dip in dividend growth.
For those seeking a more in-depth analysis, InvestingPro offers additional tips, including an evaluation of the company's liquidity and debt levels, as well as analysts' profitability predictions for this year. A total of 9 InvestingPro Tips are available, which can be accessed for Swisscom AG at InvestingPro. These insights, coupled with the anticipated positive impact of the Vodafone Italia acquisition on Swisscom's free cash flow, provide a comprehensive view for current and potential investors.
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