On Thursday, HSBC analyst downgraded Elisa Oyj stock, a Finnish telecommunications company, from Buy to Hold, while slightly increasing the price target to EUR50.00 from EUR49.00. The adjustment reflects the analyst's view of the stock's limited upside potential following its recent strong price performance, which has approached the previous target price.
Elisa Oyj, listed on the Helsinki Stock Exchange as ELISA:FH and over-the-counter as ELMUY, has been considered an expensive stock within the European market. This perception is attributed to its consistent delivery of mid-single digit mobile service revenue growth and a leading return on capital. These factors are seen as results of successful customer upgrades to 5G tariffs and beneficial spectrum issuance combined with low capital investment.
Earlier in 2024, HSBC's stance on Elisa Oyj shifted when the stock's valuation became more attractive, as noted in a report dated February 13, 2024. The valuation was supported by three independent methodologies, which included enterprise value to invested capital (EV/IC) versus return on invested capital (RoIC) over weighted average cost of capital (WACC), trading multiples, and yield spread. This led to an upgrade from Hold to Buy at that time.
However, due to the stock's performance nearing the former price target, the upside is now seen as considerably more limited. HSBC has updated its discounted cash flow (DCF) model, which resulted in a new target price of EUR50, only one euro higher than the previous target. The report also acknowledges that Elisa Oyj has characteristics similar to a 'bond-proxy', meaning its performance benefits from a falling rates environment, which enhances the appeal of its dividend yield.
The analyst also notes a risk to the timing of this downgrade, suggesting that further easing of rates might support additional price increases. Despite this possibility, HSBC remains skeptical that the market will reach the negative government bond yields previously seen in Finland and views significant trading upside as comparatively unlikely.
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