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Investors shunning Nokia Oyj against the backdrop of a larger technology bounce are overlooking some key qualities the Finnish technology company has to offer, say analysts at Citigroup.
“We spent the day with Nokia’s CFO (Chief Financial Officer) Marco Wiren and came away with conviction in our buy rating on Nokia shares,” said a team of analysts led by Andrew Gardiner in a note on Friday.
“We find Nokia executing crisply in a challenging environment, posting top- and bottom-line growth that is underappreciated/discounted by investors,” said the analysts. They noted that shares are trading on “historically cheap” at four and three times 2023 and 2024 enterprise value/earnings before interest, taxes, depreciation & amortization — one valuation metric that determines a company’s fair market value.
The Citi analysts said they understand that Nokia’s “visibility is less than ideal,” given the many moving parts of factors such as India’s 5G ramp, and 5G inventory digestion in the U.S., optical strength but with weakness now showing up among suppliers, market share gains and a lower reset of expectations over intellectual property rights royalties.
“That said, we see expectations as now at a reasonable and achievable level, with 2023 revenue at the midpoint of Nokia’s guidance range and operating margin at the bottom of the 11.5-14.0% range. We look for continued execution from Nokia to shine through and drive shares higher through the coming quarters,” they said.
Gardiner and his team said the biggest drag on near-term revenues remains litigation against Chinese handset makers Oppo and Vivo over patents and associated lack of revenue on that front, said the analysts, who added that Nokia remains confident in their position owing to legal success in Germany and the U.K.
“Now that consensus has pushed out a potential Oppo / VIvo settlement to 3Q/4Q23 [third quarter/fourth quarter 2023] , we see limited chance of disappointment with 2Q [second quarter] results,” said the analysts, who have a €6.00 price target on Nokia.
After a choppy start to the year, shares tumbled in late March after Nokia reported a worse-than-forecast first-quarter profit, guided for a lower sales outlook and said customers are beginning to delay spending.
After a 25% slump in shares for 2022, Nokia has lost around 12% so far in 2023, a loss almost evenly matched by rival Ericsson, which said last month that customers in early 5G markets had slowed their pace of deployment. Shares rose 0.5% on Friday.
