HSBC Upgrades Telefonica to “Hold,” Analysts Cite “Benign Rate Cycle” Among Reasons

Spain’s Telefonica is poised to gain from a more favorable interest rate environment and an improved market position in Brazil, according to analysts at HSBC.

In a recent update, HSBC raised their rating for the stock from “Reduce” to “Hold,” noting that decreasing borrowing costs could alleviate some scrutiny on Telefonica’s relatively high debt levels.

The analysts also pointed out that the local competitor Oi’s announcement of a second bankruptcy protection filing last year could enhance Telefonica’s market structure in Brazil.

Telefonica has been focusing its operations primarily on Spain, Brazil, Britain, and Germany, while reducing its presence in other Latin American markets where costs are high and returns are low. As part of this strategy, the company announced negotiations to sell its Colombian division to Millicom, a telecom service provider operating under the Tigo brand in various Latin American countries. This sale is expected to bring in $400 million in cash, marking a significant step in addressing Telefonica’s non-core asset exposure in the region.

These developments follow Telefonica’s recent second-quarter results, which exceeded expectations with a net profit of 447 million euros, surpassing analyst forecasts of 336 million euros. Revenue also outperformed projections, coming in at 10.26 billion euros compared to the expected 10.05 billion euros. The company stated that its performance in the first half of the year puts it on track to achieve its annual financial goals.

Telefonica’s stock has seen a rise of over 17% this year.