Telefonica S.A. (ADR) (TEF), Telecom Italia S.p.A. (ADR) (TI): The Bottom Line

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Without discussing the possibilities around mergers (with 3Italia, for example), Telecom Italia S.p.A. (ADR) (NYSE:TI) looks like a compelling investment at current prices. To set an example, France Telecom SA (ADR) (NYSE:FTE), which does not have relevant investments within Latin America but does have a sizable presence in Africa and Asia, trades at an adjusted 2013 equity FCF yield of 15%. Even if France Telecom SA (ADR) (NYSE:FTE) also looks relatively cheap at a 15% FCF yield, the company trades at 2013 4.5x EV/EBITDA, which is a 1x EBITDA premium to Telecom Italia S.p.A. (ADR) (NYSE:TI).

Bottom Line

Overall the European telecom sector is offering many opportunities ahead, but you should be careful when going long. I made a mistake when i bought Telefonica S.A. (ADR) (NYSE:TEF). Even if it could be a great time to buy for the long term, the company is facing an incredibly tough time in its home market (Spain). I do not expect the shares to strongly out-perform the market until the dividend is re-instated. Telecom Italia S.p.A. (ADR) (NYSE:TI) looks awfully cheap at current prices, but you should be careful if you go long; a tough reality could easily become tougher (as it happened in Telefonica’s case). My recommendation: have these companies in your watch list but don’t go long just yet.

The article Results Recap: Eropean Telecom Companies originally appeared on Fool.com and is written by Federico Zaldua.

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