By Anko Beldsnijder and Richard Burkhardt - avant garde capital
The stock market listing of Deutsche Telekom in 1996 made the company one of the flagship examples of the dotcom bubble. However, many investors lost interest when the stock fell by over 90% after the bubble burst in 2000. Since then, Deutsche Telekom has moved in the shadows for over two decades. But is this image still justified today?
Just like Bayern München, whose jersey sponsor Deutsche Telekom has been since 2002, the company has developed into a global top player in the telecommunications market. Did you know that Deutsche Telekom today generates more profit than all other European telecommunications companies combined? Or that it ranks 11th in the global ranking of the 500 most valuable brands? After a decade of outperformance, Deutsche Telekom has reached a market capitalization that equals that of all European telecommunications companies. But what makes the stock an attractive investment?
The acquisition of VoiceStream (now T-Mobile US) in 2000, initially viewed critically, laid the foundation for today's success. Under the leadership of Timotheus Höttges, CEO since 2014, Deutsche Telekom has established itself as an industry leader through smart decisions and investments. T-Mobile US, 51% owned by Deutsche Telekom, is the main growth driver. After the merger with Sprint in 2020, the company benefits from a superior mobile network and a growing US market. By 2027, T-Mobile US plans to return 50 billion US dollars to its shareholders, which also benefits Deutsche Telekom.
The company also shows growth outside the USA. Since 2020, the German business has grown by an average of 3% per year, driven by investments in network quality and customer satisfaction. Similar growth rates are also being achieved in the rest of Europe.
On October 10 and 11, 2024, Deutsche Telekom will present new medium-term targets at Capital Markets Day. Consensus estimates forecast revenue growth of 2.5% and Ebitda growth of 5.9% per year until 2027. Due to the strong free cash flow development, Deutsche Telekom pays high and increasing dividends and has launched a share buyback program in 2024. Earnings per share are expected to increase by 11-12% per year until 2027.
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Despite the strong share price performance, Deutsche Telekom stock remains attractively valued. With an EV/Ebitda of 6.4x for 2025, the valuation is in line with the industry average, while the company offers a better growth profile. From a GARP perspective, the stock is a promising defensive investment.
In the Market Fit Rating by Leeway, Deutsche Telekom achieves 47.8 points – a medium value. While high margins and strong growth are positive from a GARP perspective, Leeway's AI algorithm views these critically in the telecommunications sector. This illustrates how Leeway uncovers hidden patterns and points out risks. However, Deutsche Telekom scores well on debt ratio, dividend yield, and payout ratio.
