October 27th, 2020 | 09:50 CET
Deutsche Telekom, Freenet, Upco International: Where telecommunications creates returns
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At home in Southern Germany, the passionate stock exchange expert has been accompanying the capital markets for about twenty years. With a soft spot for smaller companies, he is constantly on the lookout for exciting investment stories.
Deutsche Telekom: Solid, without surprises
A stock that is more of a conservative investment is the stock of Deutsche Telekom. Germany remains the core market for the telecommunication giant. Still, the Company also is active in the rest of Europe and the USA. Deutsche Telekom's current valuation is more than EUR 70 billion. The U.S. business, in particular, has been developing well and was further strengthened some time ago by the acquisition of Sprint. Deutsche Telekom has long recognised that size is everything in the telecommunications market and is acting accordingly. Meanwhile, there are always problems with organic growth and weak figures.
But given the setbacks in many other industries, Deutsche Telekom is considered stable. The latest quarterly figures are positive and have been received well by the market. The pandemic has hardly affected the Company at all. The share has been moving sideways for many months but offers a stable dividend yield of around 4%. As the Company is on a positive path in the USA and should even benefit from the pandemic, the share is an alternative for conservative investors. However, investors should not expect big surprises.
Freenet: Don't be dazzled by the dividend
The Freenet share is also a timeless dividend investment. The Company focuses more on mobile communications and mobile Internet and currently promises investors a dividend yield of around 9%. Freenet shows that such payout levels often have a catch: The figures for the first half of 2020 were slightly mixed. That in itself would not be a problem, but the Company is said to be in debt.
Only recently, the Swiss subsidiary Sunrise was sold, and Freenet put part of the proceeds into its balance sheet - unrestricted growth looks different. Although the stock is undervalued, Freenet gives the impression of a value trap. The competition is fierce, and Freenet itself has little to offer that is suitable as a unique selling point.
Consolidation as the key to a billion-dollar market
The young Canadian Company Upco International is taking a completely different path from the thick ships of the industry. The Company is competing to profit from the increasing competition and price war in the mobile phone market. Over the past 15 years, data services have ensured that sales of traditional telecommunications services have been steadily declining. Today, for example, many people communicate via WhatsApp and no longer write text messages (SMS). The use of classic telephony is less and less common. This development is becoming a burden for smaller telecommunications providers: Costs are rising and getting relevant, especially for these small Companies. Upco has set itself the goal of offering these small providers a platform for outsourcing certain telecommunications services. Synergies are created when the volumes of several smaller Companies come together, says Upco International. The providers can then concentrate on their core business.
In addition to the wholesale telecom business, which is benefiting from the growing cost pressure in the industry, Upco also offers digital services. These include a payment service that works with existing bank accounts and is designed to enable real-time payments. Compared to existing competitors, Upco sees cost advantages as well as an exceptionally high level of security.
Over the next three years, the Company plans to continue its growth path and to achieve substantial growth in both wholesale telecom and digital services. The Company sees excellent opportunities in the former area in particular, as the shrinking market for classic telecommunications services remains essential for providers with continued high market volume. The platform offered by Upco International is expected to gain market share rapidly.
Upco International: Telecom visionary stands at the very beginning
While classic telecommunication shares are rather conservative investments, Upco International's shares are the opposite: the market capitalisation is currently only EUR 2 million. Given this valuation, the share must be considered highly speculative. With the management team's experience in the telecom sector and Upco International's clear vision, investors can keep an eye on the stock. There is no doubt that the Company is at the beginning of its development.
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