Goldman Sachs backs BT, Tele2, Telia and Elisa; cuts Swisscom, Vodafone to “sell"

Investing.com -- Goldman Sachs has reinforced its bullish outlook on parts of the European telecom sector, naming BT, Tele2, Telia and Elisa as top “buy” rated picks while placing “sell” ratings on Swisscom and Vodafone. 

The calls came after the bank’s European Communacopia Conference in London on Sept. 16-17, which featured executives from 17 telecom companies across the region.

The brokerage pointed to stronger pricing power and efficiency gains as the main catalysts for growth among its preferred operators. 

“Overall, we heard bullish updates on improved pricing power supporting structurally higher revenue growth and incrementally positive comments on cost efficiencies to further boost the organic returns outlook for the sector,” the brokerage said.

BT was highlighted as benefiting from record fibre demand at Openreach. The company’s deputy chief executive Katie Milligan told the conference that 100,000 new fibre customers were added in a single week in September. 

Goldman Sachs said it expects BT’s free cash flow from 2027 onward to be more than 40% ahead of consensus estimates.

Elisa’s chief executive Topi Manner described customer uptake of bundled security products as encouraging, with one-third of eligible users already signed up. 

Goldman Sachs said Elisa’s consistent price rises and scope for automation and AI-driven efficiencies should sustain what it called “ sector-leading structural growth and returns improvement.”

Sweden’s Tele2 was also endorsed after its chief executive Jean Marc Harion pointed to continued customer acceptance of annual price increases and stronger growth in the Baltics. 

Goldman Sachs projected the company’s cost-cutting program, including 500 staff reductions already completed, will support more than 10% EBITDA growth in 2025.

Telia’s chief financial officer Eric Hageman reassured investors that the company remains on track to deliver more than SEK10 billion in free cash flow by 2027. 

Goldman Sachs expects Telia’s EBITDA growth of about 4% to outperform consensus forecasts, supported by additional cost efficiencies.In contrast, the brokerage warned that Swisscom’s growth prospects remain limited.

Chief financial officer Eugen Stermetz emphasized efforts to stabilize free cash flow in Switzerland and integrate Fastweb with Vodafone Italia, but Goldman Sachs said “the scale of improvement is unlikely to materially move the needle on the expected service revenue trajectory,” with upside from cost savings capped at CHF50 million this year.

Vodafone was also marked down. European Markets chief executive Ahmed Essam admitted the group could not commit to underlying growth in Germany through 2027. 

Goldman Sachs said the operator’s inability to stabilize its German broadband base and slowing growth in the U.K. “is likely to continue to limit scope for a rerating,” leaving it a relative underperformer in the sector.

The analysts added that deregulation is benefiting only the strongest operators. Markets such as France, Germany and Switzerland continue to show weaker pricing power, while fibre and mobile deregulation in the Nordics and the U.K. are driving “structurally higher revenue growth” for better-positioned peers.