Nokia
Devices & Services division - 1.40 Euros per share This is the major part of Nokia and where the partnership with Microsoft is centred, and so is likely to be at the forefront of any valuation exercise undertaken by Microsoft in appraising a fair value for the business. We calculate a value along the following lines: gross revenue for 2011 was $33.5bn and its nearest comparable Sony Ericsson was bought out by Sony for $1.5bn in 2011. Sony Ericsson was producing annual revenues of $7.3bn at the time of the buyout yet similar gross margins to Nokia, and so pro rating this multiple results in a valuation for this division of $6.9bn; per share in Euro’s this equates to circa 1.40 Euros. Location & Commerce - 30c per share This segment had about $1bn in sales in 2011. One of its primary competitors, Telenav, generated gross sales of $210m in 2011 and has a market capitalisation of approx $300m. Telenav’s revenue is just a fifth of Nokia’s and so applying a pro rata multiple results in a value of $1.5bn — approx 30c per share. With net cash of approx 1.30 Euro’s per share, the sum of above results in a total of 3.30 Euro’s per share. This excludes any value whatsoever for the brand of Nokia (and which incidentally Interbrand, the respected brand valuation and consultancy company, put a value of $25bn in 2011!) and of course a control premium that would be required to be paid in the event of a wholesale takeout — generally around 25 - 40%.
If there is any realism in the brand calculation and even with a major haircut, it seems to us that Nokia is certainly worth more, potentially a lot more, than its current 2.40 Euro’s per share. The impending sale of Nokia’s luxury phone arm Vertu - is a possible clue as to how Nokia could also piecemeal divest elements of its empire with NSN, perhaps next on the block, and so leave the rump Devices and Services division for Microsoft to swallow at some point within the next 18 months. The shares look to be one of those classic value plays with no value being embedded for any upside catalysts, and a good security net of value to underpin a long trade at this level. It is also worth recalling that in early 2000 Apple shares themselves had been written off by Wall Street and were trading at less than $10’s per share. The rest is, of course, history... Below is a recent chart with some near term potential retracement levels for the more short term orientated traders (PLEASE NOTE THE NYSE LIST DOLLAR DENOMINATED SHARES HAVE BEEN USED HERE).
June 2012 | www.financial-spread-betting.com | 35