uplift in valuations and share prices

  • The current Covid-19 (coronavirus) pandemic and the material impact on both the global economic outlook and the living and working arrangements for a large proportion of the world mark an appropriate time to revisit this outlook. While telecoms has been front and centre in the Covid-19 discussion in terms of network resilience and the shift to home working, the medium-term outlook, once some degree of normality returns, remains uncertain.

    A particular challenge at times of global economic crises is that policy response can drive overall stock market and relative sector performance, with company fundamentals of less relevance. Recent moves by many governments and central banks include payments to workers and large loans to businesses, alongside further interest rate cuts, injecting up to $13 trillion into global financial markets, based on Morgan Stanley figures.
    As much of the world is still in lockdown, the initial focus of the Covid-19 impact has been on how operators would maintain their networks and meet surging traffic volumes. Mobile operators have responded by offering free data and services to their users, while also benefitting in some cases from access to additional spectrum resources to manage increased traffic volumes.

    As companies and individuals begin to adjust to new realities, and indeed as some countries beginning easing lockdowns, the key question shifts to the impact on financial performance. China was the first country hit by Covid-19 and is one of the first now emerging beyond lockdowns, giving some good evidence of how operators will fare as the situation improves.

    First quarter results from the Chinese operators were resilient, with modest service revenue growth (1 per cent) an improvement over the prior year and with March already showing a recovery in new subscriber numbers, driven by 5G adoption. Consensus financial forecasts for the rest of the year are largely unchanged, reflecting optimism of the ongoing uptick in 5G demand. Share prices of the three operators have recovered strongly since market lows in mid-March, even if in relative terms they have underperformed local market indices.

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