Deutsche Bank initiates coverage on Telekom Austria with “hold” rating

Investing.com -- Deutsche Bank (ETR:DBKGn) has initiated coverage on Telekom Austria (VIE:TELA) with a "hold" rating and a price target of €11, citing the group’s steady performance across challenging markets and conservative balance sheet.

Shares of Telekom Austria were up 1.2% at 06:02 ET (10:02 GMT).

According to Deutsche Bank analyst Telekom Austria operates through seven country subsidiaries, though its core financial performance remains concentrated. 

Four countries, Austria, Bulgaria, Belarus and Croatia, generated about 90% of the group’s operating free cash flow in fiscal 2024. Austria led with 36%, followed by Bulgaria at 24%, Belarus at 16% and Croatia at 13%.

The company’s service revenue mix in wireless versus wireline was split at 44% to 56% in Austria, and 70% to 30% in its international operations. 

Over the past three fiscal years to 2024, Telekom Austria delivered a 3% compound annual growth rate in operating free cash flow.

The company’s net debt to EBITDA, excluding leases, stood at 0.2x at the end of fiscal 2024. 

That leverage ratio had declined by 0.7x following the spin-off of its tower infrastructure unit, EuroTeleSites (ETS AV), in September 2023.

Despite operating in competitive markets, with Austria identified as particularly difficult, Telekom Austria has managed to maintain steady progress. 

Deutsche Bank noted the company is leveraging its fiber-to-the-premises infrastructure and B2B digital service capabilities to drive growth.

However, the benefit from inflation-linked price increases is expected to diminish from fiscal 2025. 

The brokerage said the company’s longstanding workforce restructuring program in Austria, now in its 18th year, combined with inflation levels returning to near-normal, should allow for better control of staff costs.

Workforce restructuring expenses are also expected to decline after fiscal 2025.