Medium term
/
Buy
Trade view / 19 February 2018 at 14:27 GMT

Nokia working hard to turn its fortunes around

Fixed income Specialist / Saxo Bank
Denmark
Price target: N.A.
Market price: 98.3

SaxoStrats

 

Nokia is working hard in order to turn the company around. Since 2014, the handset division was sold to Microsoft and it has acquired Alcatel-Lucent in an effort to become a well-diversified network-equipment vendor. Although Nokia growth has been challenged by weak wireless market conditions, the company is cutting expenses and investing in 5G radio gear which is heavily marketed and will emerge by 2020 in key economies such as the US and China. 

Nokia managed to end 2017 with strong earnings and although competition is rising from Chinese vendors, improvements are forecast as the company rolls out the 5G network later this year as wireless operators are starting to engage in discussion.

Investment

We believe that Nokia 3.375% Sr. Unsecured Notes due June 2022 offer an attractive yield (approximately 3.75%) in terms of risk/reward. Although its direct competitor Ericsson has notes maturity 2022 offering 25bps more, Nokia has a superior balance sheet and seems to be better positioned to leverage on 5G technology.

Price table Parameters

Minimum piece is 2,000 nominal USD with 1,000 nominal USD increments. Return objective is primarily repayment and coupon

Key risks

You have to be aware that Nokia could suffer from delays in the adoption of 5G technology and pricing aggression from its peers. Because the company is recovering from a period of historically poor performance, bonds may suffer from a deteriorating balance sheet.

US 10-year bond yields versus BBB/Baaa spread:

Nokia
Source: Saxo Bank

Nokia 3.735% 2022 yield since issuance:
Nokia
Source: Bloomberg
 
— Edited by Michael McKenna

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