Asian Data Upside And Nordic Cost Efficiencies Will Drive Stronger Long-Term Earnings

Catalysts

About Telenor

Telenor is a diversified Nordic and Asian telecommunications group providing mobile, fixed and digital connectivity services to consumers and enterprises.

What are the underlying business or industry changes driving this perspective?

• Ongoing upselling, improved product mix and growing wholesale revenues in the Nordics, supported by strong network quality and national roaming agreements, are expected to underpin steady service revenue growth and operating leverage, lifting EBITDA and earnings.
• Transformation programs that are structurally reducing OpEx, including FTE reductions and customer service efficiencies, are likely to compound over time, expanding EBITDA margins and supporting a higher, more sustainable free cash flow run rate.
• Rising data usage and the transition from voice to data in Asian markets such as Bangladesh and Pakistan, combined with disciplined capacity investments, position Telenor to capture higher ARPU and stabilize regional EBITDA growth as macro conditions normalize.
• Strategic portfolio moves, including the planned sale of Telenor Pakistan and the GlobalConnect fiber acquisition, are set to recycle capital into higher-return Nordic infrastructure, improving group return on capital employed and potentially supporting EPS and dividend capacity.
• The long-term procurement partnership with Vodafone, leveraging combined annual spend of around NOK 300 billion, is expected to improve sourcing terms and supply chain resilience, structurally lowering network and equipment costs and enhancing group EBITDA margins and free cash flow.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Telenor's revenue will remain fairly flat over the next 3 years.
• Analysts assume that profit margins will increase from 12.5% today to 17.2% in 3 years time.
• Analysts expect earnings to reach NOK 13.9 billion (and earnings per share of NOK 10.11) by about December 2028, up from NOK 10.1 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as NOK18.8 billion.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 20.1x on those 2028 earnings, up from 19.6x today. This future PE is greater than the current PE for the GB Telecom industry at 19.6x.
• Analysts expect the number of shares outstanding to grow by 0.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.6%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Persistent macroeconomic fragility and intense data price competition in key Asian markets such as Bangladesh could delay the expected post election recovery. This may force higher network and spectrum investments to defend market share and compress service revenues and earnings in the region over the medium term.
• Structurally high and potentially rising spectrum costs in Bangladesh combined with historically elevated spectrum pricing relative to global peers may require larger upfront payments at renewal. This could divert capital from growth initiatives and put pressure on free cash flow and net margins.
• The financially weak 5G NetCo structure in Malaysia and uncertainty around its restructuring could lead to rising 5G traffic charges for CelcomDigi and other operators. This may erode Telenor’s share of associate earnings and limit group EBITDA growth from Asia.
• Ongoing and potentially intensifying competitive pressure in Nordic and Asian mobile markets, particularly in Finland, Denmark and the low cost data segment in Bangladesh, could force higher sales and marketing spend and more aggressive pricing. This would weigh on ARPU, gross margins and ultimately EBITDA growth.
• The planned divestment of Telenor Pakistan will remove an asset currently expected to contribute around NOK 0.5 billion in free cash flow in 2025. Any delay in redeploying those proceeds into equally or more accretive opportunities could reduce group free cash flow momentum and dampen earnings growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of NOK168.0 for Telenor based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NOK210.0, and the most bearish reporting a price target of just NOK138.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be NOK80.7 billion, earnings will come to NOK13.9 billion, and it would be trading on a PE ratio of 20.1x, assuming you use a discount rate of 6.6%.
  
• Given the current share price of NOK145.0, the analyst price target of NOK168.0 is 13.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.