Quick Value 11.2.20 (DTEGY)
Market Performance
What a week!
Equities sell off, oil sells off, yields up, and VIX up!
Market Stats
Personal income and spending report is out…
Another month into the COVID pandemic and another month of increasing personal income levels…
September 2020 was at a $19.8tn annualized rate — up ~1% from last month and up 5% from September 2019…
Personal savings are up too! At a $2.5tn annualized rate compared to ~$1.3tn last year.
I’ve been rehashing this same comment for months now (and perhaps I can’t take my own advice?) — the consumer is still financially strong.
Quick Value
Deutsche Telekom (DTEGY)
This idea isn’t any sort of secret and has likely been better covered elsewhere… But it’s pretty simple and still looks like a good bet.
DT owns about 44% of T-Mobile (TMUS) and a German/Eurozone wireless/broadband business.
With the closing of the T-Mobile and Sprint merger, those shares have been on a tear lately… DT hasn’t felt the same effect — TMUS up ~40% YTD while DT shares are down on the year.
The remaining businesses (ex T-Mobile) have all been performing fairly well so far this year and remain profitable!
DT has 4.8bn shares outstanding and a 13 Euro share price = 62bn market cap. Excluding T-Mobile, DT generated about 3.2bn EUR in free cash flow over the past 12 months. At the current T-Mobile share price of $109 — DT’s stake is worth about 51.5bn Euros. So we have 51.5bn in T-Mobile value and a business generating 3bn+ in annual FCF?
Throw in a 0.60 per share dividend and you get a 4.6% yield too…
T-Mobile (and now Sprint) are consolidated on the DT balance sheet which recently added a good chunk of debt. Even so, leverage is pretty reasonable at ~2.7x EBITDA.
The outlook for the ex-US businesses also look fairly attractive at a targeted 2-3% EBITDA growth rate.
And the German wireless business is a market share leader in both wireless and broadband services…
