Why Nokia Should Connect People With Healthy Investment Returns

Why Nokia Should Connect People With Healthy Investment Returns

over 2 years ago2 mins

Summary

  • Nokia stands to benefit as governments ramp up 5G infrastructure investment and ban Chinese firms from bidding for contracts.
  • The company’s new CEO has an impressive track record.

Tell us about yourself, Janak

I’m Janak Raja, a venture capital fund analyst specializing in early stage healthcare and technology investments.

What’s the pitch?

A long-term investment in Nokia (ticker: NOKIA). Nokia’s stock price has been hovering around 5 euros for the past few months. The company outperformed expectations in the first quarter and is catching up in its 5G capabilities.

What does it do?

Once the world’s biggest maker of mobile phones, nowadays Nokia focuses on telecoms infrastructure, having 22% of global market share.

What’s your investment thesis?

In 2020 Nokia accounted for 22% of the network infrastructure market, with only Huawei and Ericsson larger. With 5G one of the breakthrough technologies of the next 10 years and other industries – such as edge computing and driverless cars – relying on it, governments will be pushing for more 5G infrastructure spending.

Market Leading Chinese companies Huawei and ZTE are being blacklisted in both 4G and 5G infrastructure, presenting a fantastic opportunity for incumbents Ericsson, Nokia, and Samsung.

This presents a growth opportunity for this value stock with a new CEO joining in 2020, Pekka Lundmark. Lundmark delivered significant shareholder value at the helm of Finnish energy company Fortum through clear strategy and vision. If he can deliver the same thing at Nokia there could be great returns for investors.

What are the key events you’re watching?

  • Chinese companies are appealing bans in local courts (e.g. Sweden).
  • Key customer wins. Each 5G contract win is guaranteed, long-term revenues.
  • The reinstatement of dividends. Nokia paused dividends in 2020, to increase investment in 5G.

What’s the upside potential if your thesis is correct?

In the near term the share price could move to 6.50 euros. This is based on a free cash flow discount model based on analyst forecasts over the next 10 years and 0.2% perpetual growth thereafter. 

Also Nokia holds a huge amount of intellectual property that could make it an acquisition target for companies such as Cisco.

What are the big risk factors you’ve spotted, and how do you plan to mitigate them?

  • Nokia recently lost out to Samsung on a large contract with existing 4G customer Verizon. Samsung has benefited from South Korea’s push to develop 5G.
  • Countries reverse bans on Chinese 5G tech companies.

These risks could be mitigated by holding a basket of 5G network companies as the overall sector is poised to do well in the coming years.

This insight was submitted by a community member for information and educational purposes. It doesn't represent the views of the Finimize team and shouldn't be taken as financial advice.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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