Telefonica Investment Recommendation

Abstract

This dissertation aimed to conduct an equity valuation report on Telefonica, a Spanish based leading telecommunication operator. This was done by utilizing the discounted cash flow model, an intrinsic valuation method, to forecast Telefonica’s cash flows for the next 10 years until 2033, and then discount them back to the present value through the use of a weighted average cost of capital of 6.32% and growth of 3%. The DCF model indicated that Telefonica’s stock is undervalued by 33% when compared to Telefonica’s share price as of 30/06/2023, which amounted to 3.72 EUR. Additionally, relative valuation was also carried out through the use of three multiples: Price/Earnings, Price/Book, and Enterprise Value / Earnings before interest, tax, depreciation, and amortization. The results further supported our DCF findings, in which the use of both the P/E and P/B multiples resulted in Telefonica being undervalued. Moreover, sensitivity analysis of the enterprise value and the target price was conducted. Overall, the report finds that Telefonica is undervalued. Thus, the investment recommendation is BUY.