Kepler cuts Telekom Austria stock rating, lowers price target to EUR9

On Monday, Kepler Cheuvreux analysts adjusted their stance on Telekom Austria (OTC:TKAGY) shares, downgrading the rating from Buy to Hold and reducing the price target to €9.00 from the previous €9.30. The revision comes as the analysts believe that the company’s equity story has shifted, noting a change in the main growth driver.

The analysts pointed out that despite Telekom Austria’s continued appeal based on valuation multiples, expectations for superior growth in the coming year have dimmed. Factors contributing to this outlook include a decrease in inflation, an increase in market competition within Austria, and unremarkable results from the company’s commercial efforts and Fibre To The Home (FTTH) strategy.

The decision to maintain the current dividend payout rate was highlighted as a significant factor in the downgrade. Kepler Cheuvreux suggests that this choice not only makes Telekom Austria’s stock less attractive in terms of relative yield but also leads to a highly suboptimal capital structure. The analysts interpret this strategy as potentially indicative of a risky mergers and acquisitions (M&A) approach.

In their comments, the analysts articulated, "The lack of willingness to raise the dividend payout not only prevents the stock from offering an attractive relative yield but also creates a highly suboptimal capital structure that can only be understood in the context of a risky M&A strategy."

The revised rating and price target reflect Kepler Cheuvreux’s current assessment of Telekom Austria’s stock, as the company navigates its strategic and financial positioning in the market. The analysts’ downgrade suggests a more cautious outlook for the stock’s performance in the near term.

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