* Investors, analysts say default fears have receded
* Spreads on outstanding bonds shrink
By Ritsuko Ando
HELSINKI, June 20 Investors alert to M&A
speculation around Nokia are taking a fresh look at
whether the struggling mobile handset maker's share price
undervalues its assets and increasing signs of financial
Reports of interest from Huawei and Microsoft
show Nokia is still vulnerable but several analysts
said they were more optimistic since plunging sales and alarming
cash burn raised fears of default several months ago.
They said there was no contradiction between a resurfacing
of M&A talk and some signs that Nokia might recover from a
mauling by rivals Samsung and Apple in the
key smartphone segment in recent years.
"The company's not in a crisis like it was a year ago. That
makes Nokia now more likely to be a target of merger or
acquisition," said Mikael Rautanen, an analyst at equities
research firm Inderes.
The Wall Street Journal on Wednesday reported that Microsoft
recently considered buying Nokia's devices business, but that
talks failed over price.
Nokia officials declined to comment on the report on
Wednesday and on Thursday.
That followed comments by a Huawei executive to the
Financial Times that it was "open-minded" about acquiring Nokia,
although the Chinese company later denied plans to buy Nokia.
Nokia shares have risen around 14 percent to 3 euros over
the past week on the reports as well as news that Siemens
was in talks to sell its stake in their equipment
joint venture, Nokia Siemens Networks.
Nokia's current market capitalisation around 10 billion
euros is a shadow of its peak around 200 billion in 1999.
But some analysts, who mostly have a price target of around
3 euros on Nokia shares, say the company's underlying value,
including intellectual property, its navigation business HERE
and stake in NSN, is closer to 5 euros.
"If I just look at the different assets, I arrive at a value
of that's clearly above 3 euros," said Swedbank analyst Hakan
Wranne, who also has a target of 3 euros on the shares. He was
wary of predicting recovery but acknowledged improvement.
"We had the perception of a great default risk last fall and
I think that's not there anymore," he said.
"It is undervalued, although it's only undervalued if they
succeed," said Jyske Bank analyst Robert Jakobsen, who has a
"We're not entirely out of the uncertainty. But I'm seeing
improvement and I'm not seeing that reflected that much in the
Credit markets have mirrored receding fears over the future
of the fallen mobile phone titan.
Its 6.625 percent bond maturing in May 2019 has recovered
around 20 points over the last year and its five-year CDS has
almost halved over the same period.
Spreads on Nokia's outstanding bonds shrank on Thursday
following the report on talks with Microsoft.
First-quarter results shocked markets with a
steeper-than-expected fall in sales of cheaper mobile phones,
but investors said growth in Lumia sales and a
better-than-expected cash position raised hopes the business was
Nokia has unveiled handsets in multiple price categories in
the past few months, and is expected to unveil a smartphone with
an advanced lens in July.
The faster pace in product launches has also improved
Nokia executives say they have halved the time to launch
smartphones from three years ago, when it took 22 months to come
to market with a single handset.
In May, Nokia launched the Lumia 925, a lighter and slimmer
model of its high-end smartphone range. It has also been
focusing on lower-priced handsets and in February launched a
15-euro basic phone aimed at first-time buyers.
Some investors were particularly encouraged by the May
launch of the $99 Asha 501, which straddles the feature phone
and smartphone market in a category seen increasingly crucial as
the high-end market becomes saturated.
"The new Asha launch, to some extent, answered fears that I
had on the volume decline." said Antti Karessuo, portfolio
manager at Pohjola Asset Management, one of Nokia's top 15
"Things are looking better, and we're more optimistic than
we were before."
Nokia still has a long way to go to reverse its decline.
Apple and Samsung together commanded around half of the
global market for smartphones last year by sales volume, and
accounted for around 90 percent of profits thanks to their high
margins, according to ABI Research.
Nokia CEO Stephen Elop remains under pressure to convince
investors that his controversial decision in 2011 to switch to
Microsoft's operating system was right.
But the Kantar WorldPanel Survey earlier this month showed
the Windows Phone grew the fastest of any smartphone operating
system in the three months to April, albeit from a low base.
Its share in the United States rose to 5.6 percent from 3.8
percent a year earlier. In the UK, it doubled to 8.4 percent.