UBS Investment Research
Ericsson
Takeaways from Ericsson India briefing
Confirms view of a tough market…
Ericsson’s India briefing confirmed our view of a tough market with spending
likely to be down meaningfully in 2010 ex the new entrants. Ericsson
acknowledged that operators’ businesses are under pressure from falling ARPUs
due to the recent tariff wars, there is structural overcapacity at the industry level as
there are 10-12 operators in each region and consolidation is the likely end game.
…but some positives
Ericsson indicated that pricing has stabilized, strong subs growth continues and
“human” penetration is 30-40% lower than reported due to dual-SIMs. Further,
Ericsson remains well positioned due to its services capabilities which are
important in a market such as India due to the opex focus of operators.
The great 3G wait continues
Ericsson indicated that the timeframe for 3G auctions has likely slipped to Aug/Sep
and that there will be a 6-9 month lead time from spectrum grant to service launch.
Initial 3G use is likely to be to offset spectrum shortages for voice in urban areas,
and we believe the business case for any mass 3G deployment is likely to be
limited outside the large metros. We believe 3G is increasingly looking like a 2011
story now and even so we would not expect a massive pick up in capex.
Valuation – maintain Neutral rating and SEK72 price target
We believe that Ericsson lacks catalysts in the short term and while the valuation is
supportive, newsflow around operator capex is likely to continue to be negative
through the reporting season. Our price target is DCF-based (9% WACC, 2% g).
Highlights (SKrm)
12/08
12/09
12/10E
12/11E
12/12E
Revenues
208,930
206,477
209,811
217,246
222,878
EBIT (UBS)
22,469
23,777
24,185
25,514
25,910
Net Income (UBS)
15,996
12,036
16,919
19,284
20,589
EPS (UBS, SKr)
5.03
3.77
5.30
6.04
6.45
Net DPS (UBS, SKr)
1.85
1.31
1.84
2.10
2.24
Profitability & Valuation
5-yr hist av.
12/09
12/10E
12/11E
12/12E
EBIT ma