Telefonica Unit Trust

5 positive factors to value add to your telecom investing ...

Probably not many investors take to reading transcripts of conference calls after a company release their results. However, I urge investors to read or listen in to a few of these conference calls because there are a few things you can learn from these transcripts or conference calls.

Conference calls lets the investors know what are some of the common questions asked by analyst to the managers of the company. Through these calls or transcripts, you would be able to identify what matters to an analyst. It also allows you to see the differences between what you are looking for and what most analyst are looking for.

With that you would be able to form a better set of KPI to measure this company against their competitors and also what are the red flags to look out for.

This week I was looking through Telefonica, the third largest telecom company in the world’s half year 2011 results conference call transcript [ transcript here > ] I gathered 5 points that sums up what analyst looked for and what matters to telecom managers.

One thing I do notice is that recession or boom time, the managers are able to gauge how their revenue will be. They revise that figure up or down but generally the advantage of this is that cash flow is predictable.

Because cash flow is predictable, capital expenditure and distribution decision such as stock buybacks and level of debts, dividends can be determined.

If you understand game theory, you would understand that when one telecom slashes prices, it creates a race to the bottom effect.All players do not win. The consumer. This is essentially what happened, mainly in Europe, one of the national market for Telefonica.

It is important that spectrum auction to be conducted in a manner that is sustainable for the Government but for the telecommunications industry as well.

European telecommunications companies have been killed in the past because of this huge debt to be incurred competing 3G spectrum.

In this knack of the woods, our analysis to a company’s riskiness when it come to whether it can be a going concern is usually Net Debt/ Asset. Telefonica reported that their Debt to OIBDA is only 2.5 times, meaning given their cash flow generation capability, Telefonica can return all debts within 2.5 years.

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