pair trade telia sonera vs. tele2

1
Pair Trade: Long TeliaSonera - Short Tele2 Tuesday, October 23 rd 2012 Investment Case Technical Comment Announcement: FincorSociedade Corretora, S.A. provides services of reception, execution, and transmission of orders. The contents men- tioned in this document do not constitute (nor should they be interpreted as to form) any kind of counselling, or investment recommendation, or a record of our trading prices, or an offer or solicitation to trade in any financial instrument. Fincor Sociedade Corretora, S.A. Will not accept any responsibility resulting from any use referring to said content or about any resulting effect that could have occurred. www.fincor.pt www.facebook.com/Fincor Companies Description Analysts Recommendations: Source: Bloomberg Market Price Data TeliaSonera Last Price (SEK) 44.480 YTD Change -4.90% Mkt Cap (SEK bn) 192.602 Tele2 Last Price (SEK) 113.90 YTD Change -10.30% Mkt Cap (SEK bn) 50.794 Source: Bloomberg Market Multiples P/E EPS DY Net Debt/ 2013 CAGR 2013 EBITDA Est. Est. Est. Est. 2012 TeliaSonera 10.38 0.61% 7.76% 1.59 Tele2 9.79 7.70% 10.64% 1.35 Source: Bloomberg Next Report Date & Events TeliaSonera YE Report: January 31th, 2013 Tele2 Cap. Mark. Day: Dec. 12th, 2012 Interim Rep.: February 5th, 2013 Source: Companies' web site TeliaSonera (TLSN SS) faces a number of potential cash inflows that could support the shares: TeliaSonera sold its 8% indirect stake in Megafon in Q2, but only received 20% of the total proceeds ($1.45bn). The rest should be paid in four annual installments. Megafon is due to list via an IPO; In Spain, according to the press, TeliaSonera hired banks to advise it on the sale of its Spanish business Yoigo; In Kazakhstan, TeliaSonera could also be planning to IPO a stake in its local company. TeliaSonera intends to deleverage its Balance Sheet (although the company’s net debt/EBITDA is not especially high by the standards of EU telcos). But, will the company also return some cash through a special dividend or a buyback? Key risk is market focus to shift back to the fundamental story. Q3 2012 highlighted a deteriorating trend in Telia´s Nordic assets. Tele2 (TEL2B SS) has a solid business model. However, there are some operational headwinds that could continue to hold back the stock: No near-term award of spectrum in Russia. Will Tele2 fall behind on mobile data, in Russia? The company has not yet decided whether to bid for a 4 th license and roll out a mobile network in the Netherlands; Investments in Russian and Kazakhstan could penalize Tele2’s FCF yield. The TeliaSonera / Tele2 ratio has a current value of 0.3905. We’ll define as our price target 0.4033 (+3.27%). 0.3831 will be our stop-loss level (-1.90%).

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Page 1: Pair trade   telia sonera vs. tele2

Pair Trade: Long TeliaSonera - Short Tele2

Tuesday, October 23rd 2012

Investment Case

Technical Comment

Announcement: Fincor—Sociedade Corretora, S.A. provides services of reception, execution, and transmission of orders. The contents men-

tioned in this document do not constitute (nor should they be interpreted as to form) any kind of counselling, or investment recommendation, or a

record of our trading prices, or an offer or solicitation to trade in any financial instrument. Fincor—Sociedade Corretora, S.A. Will not accept any

responsibility resulting from any use referring to said content or about any resulting effect that could have occurred.

www.fincor.pt

www.facebook.com/Fincor

Companies Description

Analysts Recommendations:

Source: Bloomberg

Market Price Data

TeliaSonera

Last Price (SEK) 44.480

YTD Change -4.90%

Mkt Cap (SEK bn) 192.602

Tele2

Last Price (SEK) 113.90

YTD Change -10.30%

Mkt Cap (SEK bn) 50.794

Source: Bloomberg

Market Multiples

P/E EPS DY Net Debt/

2013 CAGR 2013 EBITDA

Est. Est. Est. Est. 2012

TeliaSonera 10.38 0.61% 7.76% 1.59

Tele2 9.79 7.70% 10.64% 1.35

Source: Bloomberg

Next Report Date & Events

TeliaSonera YE Report: January 31th, 2013

Tele2 Cap. Mark. Day: Dec. 12th, 2012

Interim Rep.: February 5th, 2013

Source: Companies' web site

TeliaSonera (TLSN SS) faces a number of potential cash inflows that

could support the shares:

TeliaSonera sold its 8% indirect stake in Megafon in Q2, but only

received 20% of the total proceeds ($1.45bn). The rest should

be paid in four annual installments. Megafon is due to list via an

IPO;

In Spain, according to the press, TeliaSonera hired banks to

advise it on the sale of its Spanish business Yoigo;

In Kazakhstan, TeliaSonera could also be planning to IPO a stake

in its local company.

TeliaSonera intends to deleverage its Balance Sheet (although the

company’s net debt/EBITDA is not especially high by the standards of EU

telcos). But, will the company also return some cash through a special

dividend or a buyback? Key risk is market focus to shift back to the

fundamental story. Q3 2012 highlighted a deteriorating trend in Telia´s

Nordic assets.

Tele2 (TEL2B SS) has a solid business model. However, there are some

operational headwinds that could continue to hold back the stock:

No near-term award of spectrum in Russia. Will Tele2 fall

behind on mobile data, in Russia?

The company has not yet decided whether to bid for a 4th

license and roll out a mobile network in the Netherlands;

Investments in Russian and Kazakhstan could penalize Tele2’s

FCF yield.

The TeliaSonera / Tele2 ratio has a current value of 0.3905. We’ll define

as our price target 0.4033 (+3.27%). 0.3831 will be our stop-loss level

(-1.90%).