Based on the pinnacle of Deutsche Telekom, the market is underestimating its development story

© Reuters. FILE PHOTO: The logo of Deutsche Telekom AG is shown on the headquarters of the German telecommunications giant in Bonn

By Douglas Busvine

BERLIN (Reuters) – Deutsche Telekom (OTC 🙂 raised its full-year forecast on Thursday after CEO Tim Hoettges' forecast results showed the market was undervaluing the transatlantic telecommunications company's growth story.

Another string of strong results from the T-Mobile unit has boosted shares in the recently merged US operation and undermined the residual market value that the market is placing on the group's European operations in a dozen countries.

After deducting the 43% stake in the US airline, which was valued at $ 67 billion at the closing price on Wednesday, the value of the non-US business has dropped to $ 18 billion.

Hoettges told reporters that Deutsche Telekom's shares had been dragged down by their struggling rivals and a "bleak" European market, adding that it was the only European player seeing significant growth.

"The good will prevail in the end and be reflected in our share price," he said.

The shares of Deutsche Telekom rose in morning trading by 0.5% to 15.05 euros and brought this year's gains to 4%. T-Mobile stock is now up 60%, driven by excitement over the strong execution of Sprint's $ 23 billion acquisition.

Hoettges emphasized the lead the Germans have over their competitors in expanding their German 5G network and added that the geopolitical risks resulting from the dependence on the Chinese provider Huawei are manageable.

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He hopes that a proposed IT security law under consideration in Berlin will soon create legal clarity in assessing the suitability of foreign providers.

Deutsche Telekom also plans to reduce risk by supporting new open technology standards for network devices.

"We are taking steps to reduce our reliance on Asian suppliers," said Hoettges.

The group raised its 2020 core earnings guidance to € 35 billion ($ 41.2 billion) after rising 49.6% in the third quarter. Organic profit rose 10% after adjusting for the US merger.

Despite the strength of telecommunications, the troubled IT service unit of the Germans, T-Systems, recorded a 25% decline in incoming orders during the coronavirus crisis.

CFO Christian Illek said that reducing IT spending in the automotive and aviation industries would require additional restructuring at T-Systems in addition to the current three-year plan.

There was also headwind from a weaker dollar and lower roaming revenue, while merger-related costs in the US weighed on cash flow. The Group's net debt rose to 124.5 billion euros in the quarter after a US lease was extended.

According to Illek, leverage including leases for a target range of 2.25 to 2.75 was still on track within three years, compared to 2.9 times.

The German management also confirmed plans to propose an unchanged annual share of 0.60 euros.

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