Telefonica shares jump as it eyes faster growth in second half of year
Telefonica’s Performance and Strategic Outlook
By David Latona
MADRID, May 14 (Reuters) - Telefonica shares surged on Thursday after the company reaffirmed its full-year guidance while reporting lower overall leverage and forecasting faster growth in Spain and Germany during the second half of the year.
Shares in the Spanish telecoms giant were up 6.7% at 1040 GMT, leading the blue-chip index, which was up 0.8%. It was the biggest daily surge for Telefonica's stock in more than six years.
Analyst Insights and Market Valuation
In a note, Morningstar analyst Javier Correonero said the company's shares remained slightly undervalued and predicted it would reach its annual targets on the back of gradual improvement in Germany, a workforce restructuring in Spain and strong sales in Brazil.
Debt Reduction and Strategic Shifts
The company's strategy has recently shifted to cutting debt and exiting Spanish-speaking Latin America as it hopes to pursue European consolidation deals under more favourable regulation.
European Consolidation and Regulatory Environment
"We've talked a lot during the past few months about the opportunity for more scale related to creating or investing in technology in Europe," Chief Operating Officer Emilio Gayo told analysts in a call.
Gayo said the EU's draft merger guidelines appeared to be more closely aligned with Telefonica's vision by considering broader factors such as investment and technology creation, but cautioned that the real impact would only be clear once an actual transaction was reviewed under the new framework.
Second Half Growth Prospects
BETTER H2 THAN H1
Telefonica said it was on track to meet its 2026 targets - despite booking a net loss in the first quarter due to the impact of the sale of units in Chile, Colombia and Mexico - and confirmed its 0.15 euro-per-share cash dividend.
The group sees full-year constant revenue growth of 1.5% to 2.5%, with the same increase expected for adjusted earnings before interest, taxes, depreciation and amortisation. It also highlighted an expected acceleration in free cash flow ahead after first-quarter seasonal weakness.
Regional Performance Breakdown
To analysts, Gayo forecast better results in the second half of the year for both its Spanish and German businesses.
In its home market, Gayo said the improvement would be driven by price rises, restructuring savings, B2B growth and the impact of wholesale agreements.
Germany, on the other hand, suffered with revenue and adjusted EBITDA both falling by more than 8%, reflecting handset weakness and the migration of 1&1 customers. But Gayo said the 1&1 migration had peaked in the quarter and the unit aimed to return to growth in 2027.
By market, Brazil remained the main growth engine at the start of the year, with revenue up 7.4% and adjusted EBITDA up 8.7%.
Leverage and Financial Health
Telefonica said its leverage ratio fell to 2.72 times at the end of March from 2.78 times three months earlier after net financial debt declined by 1.5 billion euros, helped by the Latin American disposals. It targets a leverage ratio of around 2.5 times by 2028.
($1 = 0.8537 euros)
(Reporting by David Latona; Additional reporting by Emma Pinedo; Editing by Joe Bavier and Andrew Heavens)
