US Feature
The cash backing of Nokia which currently stands at a net figure of 4.9bn Euros (adjusted for debt liabilities) needs to be considered as part of a ‘sum of the parts’ valuation exercise as Elop forecast continuing losses into the second quarter. If they continue to burn cash and incur the level of operating losses at present then within 2 - 3 years this cash pile could be gone.
This seems highly unlikely to me, however, as even in the face of a dire first quarter, the depletion of 700m Euros from their cash reserves was largely due to “non recurring” working capital changes, i.e. discounting of stock.
Let’s look at a realistic ‘sum of the parts’ breakdown for the shares:
Gross margins were just under 30%. The nearest comparable company is Alcatel Lucent which has slightly higher margins, and so applying a 20% haircut to the valuation of Alcatel Lucent and dividing this by 2, due to Nokia’s 50% share, results in a potential value of around just over 1bn Euro’s circa 30c per share.
NSN (Nokia Siemens Networks) - 30c per share Nokia’s JV with Siemens essentially maintains and services their networks and this produced total revenue of just under $20bn for the last full year.
34 | www.financial-spread-betting.com | June 2012