Tuesday 8 October 2013

Analysis of Deutsche Telekom

A German telecom provider

Company: Deutsche Telekom

Business: The German telecom company (still today owned to almost 15% by the German government) that provides all the classical telecom services. They are divided into three groups: Consumer (Fixed, Mobile & Broadband, Cloud Services, Television), Business Customers (Information, Communication & Technology Solutions, Outsourcing & Cloud Services etc.) and finally Partner Services & Platforms (Partner for infrastructure access and network services, Platform & Cooperation projects).

Active: They are represented in over 50 countries world wide. However the strongest focus is still in Europe and more specifically in Germany.

P/E: -9.2 (they took a 10 billion € depreciation or better put loss of value in 2012)

contrarian values of P/E, P/B, ROE as well as dividend
The P/E of Deutsche Telekom is unfortunately -9.2 due to the big loss that they realised in 2012 and the P/B is slightly too high with 1.6. According to Graham it would not be a buy. The earnings to sales does of course also become -9% as well as the ROE with -17.2%. The book to debt is low with a ratio of 0.4 which I do not like. In the last five years they have had a yearly negative growth of -1.2% and one would have hoped for at least inflation. The motivated P/E ends up around 8 to 10 and looking historically then the P/E has between 20 to 110 for Deutsche Telekom which to me means that it is frequently overvalued by the market. They pay a nice dividend of 6.3% which represents more then what they earned and going back Deutsche Telekom have paid out dividends that has been higher than their earnings for the last six years! The dividend has therefore been decreasing but still... how long can and will they keep that up? The comment is due to that they have higher short debts then what they have in cash.

Conclusion: I see no interest in stepping into Deutsche Telekom today. They do pay a nice dividend but it is since a long time not proportional to their earnings and I only see that they will decrease it year after year while eating up the shareholders equity. All is done to keep the stock price at an artificial high level that I do not look upon as being motivated.

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