1. UK Telecommunication Industry Landscape

The telecommunication sector encapsulated a list of companies engaged in facilitating the communication through the phone or the internet, through airwaves or cables, through wires or wirelessly.  The UK Telecom industry represented approximately 4-5% of the GDP and has a vital role in the economic and social well-being of the country. With the evolution of the digital world, online services have become an integral part of life. Thus, the industry can offer high speed with the introduction of 5G, which will uplift the UK’s digital economy.

The British telecommunication industry remained one of the largest in Europe. Moreover, it is known for the intense competition, which resulted in lower pricing for the end-users. Several UK telecom giants are competing for an uplift in infrastructure to futureproof the UK superfast broadband network. There are four leading mobile network operators (MNO) in the UK, such as Vodafone, Three (3), EE and O2. Furthermore, there are several mobile virtual network operators (MVNO), who purchase the right from the MNO to use the wireless network infrastructure.

Key Trends in the Telecommunication Sector

Risk Exposures to the Telecommunication Sector

• Political Instability: The change in political dynamics may dampen the investors’ confidence and adversely impact the capital allocation programmes.
• Economic Downturn: The macro-economic uncertainties has impacted the demand in commercial space as the dented consumer confidence has subdued the demand for smartphone and tablet markets.
• Supply Chain Disruption: The Covid-19 pandemic and US-China spat has also impacted the availability and cost of raw materials, including smart chips.
• Cyber Crimes: The increasing number of cyber-attacks across several industries has posed serious threats, and the heavy reliance on the telecom industry has increased the cyber-attacks risk.

SWOT Analysis

Telecommunication Sector Outlook

The global Telecommunication industry was dominated by a pool of big national and regional operators. Furthermore, the industry has witnessed a trend of rapid deregulation and innovation since the early 2000s. The government monopolies got privatized, and a plethora of new competitors had entered the industry. According to GSMA Intelligence, mobile connections are forecasted to jump from 7.9 billion subscribers during 2020 to 8.6 billion subscribers by 2025. However, mobile broadband would put accelerated pressure on the fixed-line broadband subscriber base as customers would get enticed to shift towards 5G-enabled services. In a nutshell, the UK Telecom industry is highly saturated with rising infrastructure costs to gain a competitive edge from 5G broadband development.

2. Investment analysis and stocks under discussion (VOD, BBB, BT.A)

After gaining insights into the Telecommunication sector, we would look at the business model of three Telecommunication players listed on the London Stock Exchange.

A. Vodafone Group PLC (LON: VOD)

(Recommendation: Buy, Potential Upside: 20.54%, Market Capitalization: GBP 30.88 billion)

Vodafone Group PLC (LON: VOD) is an FTSE-100 listed telecom company having a global presence. The company was founded in 1984 and headquartered in Newbury, United Kingdom. It provides various services such as mobile communication, unified communication, fixed communication, cloud service, the internet of things, and security & carrier services.

The company had paid its final dividend of 45 Eurocents on 6 August 2021, while the ex-dividend date was 24 June 2021

One Year Share Price Chart

(Data Source: Refinitiv, Analysis by Kalkine Group)                                   

From a technical standpoint, the stock price is trading above the 20-days exponential moving average of GBX 112.06, indicating an upside potential in the stock price.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 20.54% over the closing price of GBX 112.56 (as of 26 October 2021).

B. Bigblu Broadband PLC (LON: BBB)

(Recommendation: Speculative Buy, Potential Upside: 13.48%, Market Capitalization: GBP 50.21 million)

Bigblu Broadband PLC is an FTSE AIM All-Share listed broadband provider that delivers superfast broadband using alternative technologies to homes and businesses that are unserved or underserved by fibre.

BBB had paid an interim dividend of 45 pence per share on 20 October 2021, while the ex-dividend date was 01 October 2021.

One Year Share Price Chart

(Data Source: Refinitiv, Analysis by Kalkine Group)

From a technical standpoint, a 20-days exponential moving average of GBX 84.34 indicates an upside potential in the stock price.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 13.48% over the closing price of GBX 86.50 (as on 26 October 2021).

C. BT Group PLC (LON: BT.A)

(Recommendation: Watch, Potential Downside: 9.74%, Market Capitalization: GBP 14.21 billion)

BT Group PLC (LON: BT.A) is an FTSE 100 listed Company, which provides communication and connectivity services. It provides services related to broadband, fixed-voice, mobile and TV to consumers in the United Kingdom.

One Year Share Price Chart

(Data Source: Refinitiv, Analysis by Kalkine Group)

From a technical standpoint, a 20-days EMA of GBX 144.47 suggests a correction in the stock price.

Valuation Methodology

Our illustrative valuation model suggests that the stock has a downside potential of 9.74% over the closing price of GBX 143.25 (as on 26 October 2021). 

*All forecasted data and peer information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*The "Buy/Speculative Buy” recommendation is also valid for the current price as covered in the report as on 27 October 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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