Monday, 8 June 2015

A fascinating new Ericsson Mobility Report...and you can consider buying the author's shares too

I wrote up my thoughts and favourite slides from March's Ericsson Mobility Report here and June's equivalent report does not disappoint again.  A few favourite charts first:

Stunning proportion of mobile phone adds in India during Q1...

...and the broader Asia-Pacific region is estimated to be responsible for over half of new smartphone subscriptions in the six years to 2020: 

Once again I observe the phenomenal ramp in data traffic...

...particularly sourced/associated with video use:

Here's a chart I have not seen in the report before though. Look at the importance from a traffic share perspective of the top third of subscribers. Not quite the pareto principle but akin...

So interesting stuff but how do you play the above? Back in March I noted Google (which I still like) and Telecity (pleasingly recently taken out - see here) as 'plays' on this theme that I liked.  I also noted:

'So how about the intellectual creators of the report Ericsson who clearly through their mobile base station and related interests are heavily involved and correlated with all the above?...For me a x14 EV/ebit multiple based on the above criteria is closer to an interesting level which would imply the middle of the SEK90-95 range.  

Usefully after a short-term sickly Q1 numbers update (I believe based more on specific timing rather than anything fundamental) Ericsson shares have come crashing back to this range:

So they are a buy then?  In isolation, yes but as I noted in my May performance review (link here) I have added a position in Nokia during last month.  And the reason why?  Potential opportunities around Nokia's recent agreed deal (subject to regulatory clearance) with its (and Ericsson's) peer Alcatel.  

This is a transforming deal for the sector - as shown below - and takes oligopolisation of the main tier 1 players (the new Nokia, Ericsson and Huawei of China) to the next level.  

This should be good for ultimate margins and hence Ericsson's share price performance.  Using the chart above you can see why there have been some rumours that Ericsson may consider a takeover of smaller entities like Juniper or Ciena but I remain unconvinced of the need or rationale for these.  

In short - unlike my conclusions at the time of the March report - I think you can read June's Ericsson Mobility Report and conclude that not only is it thematically fascinating but you can more seriously consider buying the author's shares.  

No comments:

Post a Comment