jyske markets telenor: a growing european telecom operator jyske markets, vestergade 8-16 dk-8600...

JYSKE MARKETS

Telenor: A growing European telecom operator

Jyske Markets, Vestergade 8-16DK-8600 Silkeborg Senior equity analyst:

Robert Jakobsen+45 89 89 70 44 [email protected] Assisting Analyst

Christoffer Thimsen+45 89 89 70 [email protected]

Assisting Analyst

Kasper Friis Toft+45 89 89 71 62 [email protected]

----------------------------------------------Important investor information: Please see the last pages.

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http://flare.pk/telenor-pakistan-has-posted-69-725-billion-in-revenues/

JYSKE MARKETS

New case: Telenor (BUY, price target of NOK 150, medium risk)

• A growing European telecom operator.

• Exposure to EM is valuable.

• Telenor expects considerable lift in the cash flow.

• Jyske Bank is bullish about the telecom sector.

• Dividend increase of 17% in 2014, more in store in 2015.

• Jyske Quant score supports BUY recommendation.

• Telenor should be trading at a premium to the sector, but this is currently not the case.

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JYSKE MARKETS

Telenor in brief

• Telenor is the largest Nordic telecom operator. • Its market value exceeds NOK 200bn. • It has 33,000 employees. • In 2014 sales of NOK 109bn and EBITDA of NOK 38bn are expected. • Telenor's is headquartered in Norway, which is also the most

important single market (28% of EBITDA). • Telenor also has great exposure in Sweden, Eastern Europe and not

least Asia. • Telenor owns 33% of the shares in VimpelCom, which is a major

mobile operator (200m subscriptions) in primarily Russia and Italy. The stake makes up a market value of NOK 30bn or 15% of Telenor's market capitalisation.

• The largest shareholder in Telenor is the Norwegian state which owns 54% of the outstanding shares. 40.5% of the shares is flowing freely.

• Telenor's 2013 results were released in early-February. Sales were a tad higher than expected. On the other hand, EBITDA was a tad lower than expected.

• For 2014 the management expects low one-digit sales growth and a

stable EBITDA margin relative to 2013 (34.5%). Side 3/25

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A growing European telecom operator

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Telenor: omsætningsvækst Peers: Omsætningsvækst

Telenor: EBITDA vækst (HS) Peers: EBITDA vækst (HS)

Telenor has historically performed well compared to its European rivals. This development is expected to continue.

Note: Peers are Orange, Vodafone, Tele2, TeliaSonera, Deutsche Telekom, KPN, Swisscom, Belgacom and Portugal Telecom.Source: Bloomberg

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Exposure to EM is valuable

• Telenor generates 45% of EBITDA in Asia!

• This is unique for a European telecom operator.

• Telenor has a growth culture. Hence, the management will not hesitate if it sees new attractive investment opportunities that may deliver an excellent return.

• Most recently, Telenor won the rights to offer mobile telephony in Myanmar ahead of 90 other operators. – A market with 60m inhabitants. – Only 10% owns a telephone. – If things develop as Telenor wants, the share will be increased to

70% in 2019.

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Exposure to EM is valuable.

Myanmar; 60

Bangladesh; 115

Pakistan; 189 India*; 363

Thailand; 65

Malaysia; 28

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Telenor markedsposition

Penetration degree and Telenor's market position in Asian markets

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Telenor expects considerable lift in the cash flow• Telenor expects a considerable lift in the cash flow.

• In more concrete terms, Telenor expects to deliver an adjusted cash flow of no less than NOK 28-30bn in 2015.

• This will be a lift of above 33% compared to NOK 21bn in 2013.

• The advance is to be driven by: – Growth in emerging-market countries– Break-even in India– Stabilisation in Norway– Cost savings– Normalisation of CAPEX– Expansion into new markets - e.g. Africa

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JYSKE MARKETS

Telenor expects considerable lift in the cash flow

The market does not yet discount a fulfilment of cash flow forecast

Source: Bloomberg

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Telenor forecast: NOK 28-30bn

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• Telenor expects a considerable lift in the cash flow.





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Jyske Bank is bullish about the telecom sector

• The telecom sector has an 'overweight' recommendation.

• In a 10-year perspective the sector has a very attractive valuation.

• Indicators are pointing towards a reduced risk potential for global equities and defensive sectors are therefore preferable. The telecom sector fits well into this.

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Dividend increase of 17% in 2014, more in store in 2015

• In May 2014 Telenor will pay a dividend of NOK 7 per share.

• This is 17% higher than the year before.

• The NOK 7 per share corresponds to a dividend yield of 5.8%.

• If everything proceeds as planned (particularly with respect to Telenor's increase of the adjusted cash flow) we expect Telenor to raise its 2015 dividend to NOK 8 per share.

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JYSKE MARKETS

Dividend increase of 17% in 2014, more in store in 2015

Telenor's dividend bears comparison with rivals

Source: Bloomberg

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Telenor Orange Vodafone Tele2 TeliaSonera Deutsche

TelekomDividende 2015E Dividende gennemsnit Payout rate (HS)

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Jyske Quant score supports BUY recommendation

• The Jyske Quant score of 5.2 supports our BUY recommendation.

• The closest rivals are having a Jyske Quant score of 4.7 on average.

• Particularly Telenor's relatively high scores of Fundamental Value, Financial Strength and Quality were impressive.

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Telenor Vægtet gennemsnit af Peer

Fingerprint of the Jyske Quant score of Telenor

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JYSKE MARKETSTelenor should be trading at a premium to the sector, but this is currently not the case In terms of estimated P/E Telenor is trading at an unjustified discount

Source: Bloomberg

Peer GruppeVirksomhed P/E (2014) P/E (2015) EV/EBITDA (2014) EV/EBITDA (2015) P/B (2014) P/B (2015)

Telenor ASA 12,7 11,5 6,7 6,3 2,4 2,3

Orange SA 11,0 11,1 5,0 5,1 1,1 1,0

Telekomunikasi Indonesia Perse 14,1 13,1 5,2 5,0 3,2 3,0

Koninklijke KPN NV 28,6 15,9 7,0 7,1 1,5 1,3

Vodafone Group PLC 15,7 21,7 6,5 6,6 0,9 0,8

Deutsche Telekom AG 17,7 15,9 5,8 5,6 2,0 1,9

Swisscom AG 16,4 16,1 8,1 8,0 3,7 4,0

Portugal Telecom SGPS SA 21,4 14,9 4,2 4,2 1,2 1,2

TeliaSonera AB 11,5 11,1 7,7 7,6 1,8 1,8

Tele2 AB 20,1 16,9 7,2 6,7 1,7 1,7

Belgacom SA 13,2 14,3 5,9 6,0 2,5 2,5

Vægtet Gennemsnit 15,8 15,8 6,2 6,2 1,7 1,7

Middelværdi 16,6 14,8 6,3 6,2 2,0 2,0

Præmie ifht. vægtet gennemsnit -24% -22% 6% 2% 22% 18%

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• One of the few companies that can deliver growth.







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Security codes for Telenor

Bloomberg: TEL NO

Reuters: TEL.OL

ISIN: NO0010063308

Jyske Bank: 97 54 0 39

Daily sales of the share: NOI 240m or 1.8m shares.

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Jyske Bank’s share recommendations – current allocationAllocation of recommendations, Danish shares (number)

Allocation of recommendations, all shares (number)

Source: Jyske Bank

Disclaimer & Disclosure

Jyske Bank is supervised by the Danish Financial Supervisory Authority.

The research report is based on information which Jyske Bank finds reliable, but Jyske Bank does not assume any responsibility for the

correctness of the material nor any liability for transactions made on the basis of the information or the estimates of the report. The estimates

and recommendations of the research report may be changed without notice. The report is for the personal use of Jyske Bank's customers and

may not be copied.

This report is an investment research report.

Conflicts of interest

Jyske Bank has prepared procedures to prevent and preclude conflicts of interest thus ensuring that research reports are being prepared in an

objective manner. These procedures have been incorporated in the business procedures covering the equity research activities of Jyske Markets,

a business unit of Jyske Bank.

Moreover, equity analysts at Jyske Bank cannot trade in equities for which they prepare research reports. If an analyst takes over for the

responsible analyst in connection with illness, business travels, etc., this analyst cannot trade in the relevant share on the day of publication of

the research report and the following day.

Jyske Bank may, however, hold positions, have interests in or business relations with the companies that are analysed. The research report has

not been presented to the company prior to its release. Analysts receive no payment from persons interested in individual research reports.

Read more about Jyske Bank's policy on conflicts of interest at www.jyskebank.dk/ terms.

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Financial models

Jyske Bank employs one or more of the following models: Discounted cash flow (free cash flow), Economic Value Added and the dividend

model to determine the fundamental value of a company. The fundamental value is compared to a relative valuation based on multiples such

as P/ E and EV/ EBITA. The recommendation and the price target are moreover adjusted for the expected news flow and the market sentiment

based on knowledge of the industry and company- specific circumstances. Jyske Bank’s recommendations take into account the expected

development in the equity market, the various sectors and company- specific circumstances.

Risk

Investment in this share is associated with a risk. Movements in the equity market, the sector and/ or news flows, etc. regarding the company

may affect the price of the share. See the front page of the research report for our view of the risk associated with the share. The risk factors

stated and/ or calculations of sensitivities in the research report are not to be considered all- encompassing. If the share is traded in a currency

other than the investor’s base currency, the investor accepts an FX risk. In connection with an ADR or similar papers, the FX risk exists relative to

the currency in which the underlying share trades.

Update of research report

The planned update of the report will be prepared immediately upon the release of the company’s financial statements. In addition, research

reports may be prepared on special themes specifically for the company or research reports where the company is part of the special theme.

These research reports are published on an ad- hoc basis.

See the front page for the initial date of publication of the report.

All prices stated are the latest closing prices before the release of the report, unless otherwise stated.

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Recommendation Risk-adjusted return Strong Buy >20%

Buy 10-20% Reduce 0-10% Sell <0% Source: Jyske Bank

Share recommendation concepts

Our recommendations are relative to the market development and are based on an evaluation of the forecast return within the coming 12

months. The forecast return is the difference between the current price and our 12- month price target (the price target includes the

projected dividend). The equity market has historically yielded a return of around 10% (the US equity market, for instance, yielded a return of

10% during the period 1902- 2011). When we determine the recommendation for a share we use the 10% as an estimate of the return in the

equity market.

Since our recommendations are relative and risk- adjusted, it is possible to compare our recommendations across sectors and risk categories. In

addition, the potential is stated in absolute terms via our price target. It should be borne in mind, however, that the recommendation is the

anchor. A BUY recommendation will remain a BUY recommendation until changed, even if price increases have taken the price ‘too close’ to the

price target.

The future and historical returns estimated in the research report are stated as returns before costs since returns after costs depend on a

number of factors relating to individual customer relations, custodian charges, volume of trade as well as market- , currency- and product-

specific factors. It is not certain that the share will yield the stated expected future return/ s. The stated expected future returns exclusively

express our best assessment.

Risk classification definitions:

Green products are products for which the risk of losing the invested amount is regarded as insignificant provided the investment is held to

maturity. The product type is simple to grasp. This category includes Danish goverment and mortgage bonds.

Amber products are products for which there is a risk of losing the invested amount partially or fully. The product type is simple to grasp.

This category includes equities traded in regulated markets, mutual fund units and certificates.

Red products are products for which there is a risk of losing more than the invested amount, OR product types which are difficult to grasp.

This category includes structured bonds, hedge funds, options and forward exchange contracts.

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