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  • Nokia Shares Have a 31.1 Percentage Chance of Growing Due to Expanded 5G Collaboration
Max Manturov

Max Manturov

Head of investment research regulated by CySec 06.08.2021

Nokia Shares Have a 31.1 Percentage Chance of Growing Due to Expanded 5G Collaboration

Ticker: NOK.US
Entry Price: $6,1
Target Price: $8
Projected Yield: 31,1%
Time Line: 3 to 6 months
Risk: High
Position Size: 2.00%

Company Profile

Nokia Corporation is a Finnish multinational manufacturer of telecommunications equipment for mobile, fixed, broadband and IP networks.

What's the Idea?

Earn money on companies that are expected to rise in value as it expands its collaboration to develop 5G networks, enter Chinese markets, and strengthen its financial position.

Buy Nokia Shares >>

Why Trade Nokia?

Reason 1: Building Things up Gradually

Nokia has been refocusing its business on mobile networks, network infrastructure, and the clouds in recent years. Currently, the company offers O-RAN and vRAN architecture-based solutions to deploy a new generation of 5G mobile communications. Until recently, Nokia had been lagging behind its closest competitors in terms of technology - Ericsson, Huawei, and Samsung - but this is beginning to change.

To strengthen its 5G portfolio, the company teamed with Ligado in June. Both organizations will improve the quality of services given to mobile carriers in the United States because of this collaboration.

Nokia also announced the introduction of the AirScale 5G network, which is built on ReefShark technology. A more current type of network equipment handles one of the most essential aspects of network operator operating costs: energy usage. Electricity is usually the most expensive running expense at base stations. Nokia's new AirScale system module claims to save up to 75% on power consumption. Furthermore, the product is simple to set up. The AirScale service has received rave reviews from independent analysts. The corporation is highly likely to enhance its share of the 5G industry because of this move.

Nokia got the first contract to build 5G networks in China with China Mobile in mid-July. Simultaneously, Ericsson, a Scandinavian competitor, has lost market share in this attractive market. Another favourable development for Nokia is the prohibition on American and European firms cooperating with Chinese vendors of 5G solutions, which restricts competition in these markets.

The confluence of such news provides a sense of hope about Nokia's future development.

Reason 2: Streamline Operations

In October 2020, Nokia CEO Pekka Lundmark (in charge since August 2020) unveiled a new strategy aiming to reform the company's operational model, enhance customer interaction quality, and lower costs. Furthermore, under Pekka Lundmark's leadership, Nokia began to invest in development and research, a critical success factor for a company whose revenue is based on the number of registered patents. The plan has already paid off: in the first half of 2021, Nokia began to cut costs and increase operating profit margins. This percentage was 11.9 per cent in the first half of the year, exceeding the upper limit of management's estimates.

EPS (profits per share) increased to 0.16 euros during the same time, up from 0.06 euros the previous year. In this light, the company's management revised its forecasts upward: the revenue estimate increased to a range of 21.7-22.7 billion euros from the previous one (20.6-21.8 billion euros), and the operating profit margin estimate increased to 10-12 per cent from the previously projected 7-10 per cent. As a result, continued implementation of the new strategy could give tremendous opportunities for Nokia and contribute to the company's value increase.

Reason 3: Financial Conditions

Nokia's financial situation has recently improved. In addition to expanding business margins for the first half of 2021, Nokia increased sales by 4% year on year to 10.4 billion euros. Furthermore, the corporation has a minimal debt burden: Nokia has 8.9 billion euros in liquid funds on its financial sheet, while loan liabilities total 6.1 billion euros. In addition, the company has no liquidity issues: free cash flow (FCF) was 1.28 billion euros in the first six months of 2021. In comparison, FCF was 0.26 billion euros in the first half of 2020. As a result, the company is in solid financial shape and has enough funds on its balance sheet to continue its expansion in the 5G industry.

Now, according to multiples, the company is valued cheaply relative to industry competitors:

  • EV / S - 1.47x
  • EV / EBITDA - 9.31x
  • PE - 17.4x
  • P / FCF - 14.94x

In July, several investment companies and banks raised their price targets for Nokia shares:

  • BNP Paribas - $ 7.7
  • JPMorgan Chase - $ 7.8
  • Cowen - $ 8.0

How to Use the Idea

  1. Buy shares at $6.1
  2. Allocate no more than 2% of your portfolio for purchase. To compile a balanced portfolio, you can use the recommendations of our analysts.
  3. Sell when the price reaches $8.

How to Buy Nokia?

If you don't have an investment account yet, open it now: this can be done online, in just 10 minutes. All you need to do is fill out a short form and verify your account.

After opening an account, you can buy shares in either of the following ways:

Freedom24 Web Platform: In the Web Terminal section, type NOK.US (Nokia ticker in the NYSE) in the search box, and select Nokia in the results. Open a secure session in the trading window on the right, select the number of shares you want to buy, and click Buy.

Freedom24 iPhone or Android App: Go to the Price screen and tab the search icon in the top right corner. In the search dialog that will show up, type NOK.US (Nokia ticker in the NYSE) and select Nokia in the search results. You will then see the stock in the market watch; tap it and go to the Order tab in the dialog that shows up. Specify the number of shares you want to buy and click Buy.

Buy Nokia Shares >>

*Additional information is available upon request. Investment in securities and other financial instruments always involves risks of capital loss. The Client should make himself aware at his own accord, including to familiarize himself with Risk Disclosure Notice. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Commissions, fees or other charges can diminish financial returns. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and do not constitute an investment advice service. The recipient of this report must make their own independent decisions regarding any securities or financial instruments mentioned herein. Information has been obtained from sources believed to be reliable by Freedom Finance Europe Ltd. or its affiliates and/or subsidiaries (collectively Freedom Finance). Freedom Finance Europe Ltd. do not warrant its completeness or accuracy except with respect to any disclosures relative to the Freedom Finance Europe Ltd. and/or its affiliates and the analyst’s involvement with the issuer that is the subject of the research. All pricing is indicative as of the close of market for the securities discussed, unless otherwise stated.

  • Sources of information

  • Recommendation evaluation methodology according to Market Research Terms of Use
    Freedom Finance analysts perform a three-stage analysis. They select a promising industry based on the latest news, statistics and industry-specific metrics. They assess the supply and demand situation and its future development dynamics. Industry’s investment attractiveness is mostly affected by the forecasted market growth rates; total addressable market, player concentration level and likeliness of a monopoly formation, as well as the level of regulation by various entities or associations.

    The assessment is followed by the comparative analysis based on the selected sample. The sample comprises companies with a market capitalization of over USD 1 billion, but there is space for exceptions (when the suitable level of liquidity for company’s securities is available on the stock exchange). The selected companies (peers) are being compared against each other based on multipliers (EV/S, EV/EBITDA, PE, P/FCF, P/B), revenue growth rates, marginality and profitability (operating income margin, net income margin, ROE, ROA), and business performance.

    Having completed the comparative analysis, the analysts carry out a more in-depth research of the news about the selected company. They review company’s development policy, information about its current and potential mergers and acquisitions (M&A activity), and assess the efficiency of company's inorganic growth and other news about it over the past year. The main objective at this stage is to identify the growth drivers and evaluate their stability, as well as the extent of impact they have on the business.

    Based on all the data collected, the analysts determine the weighted forecasted figures of company’s growth rates and proposed business marginality, which are used to calculate the company’s multiplier-based estimated value. The said value enables setting the stock price target and stock value growth potential.

    The expected timing of the idea implementation is set depending on the current market situation, volatility level and available forecasting horizon for industry and company development. The forecasting period is normally set between 3 and 12 months.