Pair Trade: Long Deutsche Telekom - Short Belgacom

Thursday, November 08th 2012

Investment Case

Technical Comment

Announcement: Fincor—Sociedade Corretora, S.A. provides services of reception, execution, and transmission of orders. The contents men-

tioned in this document do not constitute (nor should they be interpreted as to form) any kind of counselling, or investment recommendation, or a

record of our trading prices, or an offer or solicitation to trade in any financial instrument. Fincor—Sociedade Corretora, S.A. Will not accept any

responsibility resulting from any use referring to said content or about any resulting effect that could have occurred.

www.fincor.pt

www.facebook.com/Fincor

Companies Description

Analysts Recommendations:

Source: Bloomberg

Deutsche Telekom (DTE GY)’s Q3 2012 revenues were in line with

expectations. EBITDA was a bit above company-provided consensus. Q3

numbers seem broadly consistent with 2012/2013 consensus

expectations. Investors focus should be on the Capital Markets day that

the company will hold on 6 /7th December.

Deutsche Telekom intends to merge its US subsidiary (TMO USA) with

MetroPCS Communications. The two companies have got different

network standards (GSM/CDMA), which will probably make the

integration more challenging. However, the deal could bring significant

synergies.

Additionally, the reverse merger into MetroPCS would provide Deutsche

Telekom with a publicly traded asset in the US. In the long-term, the

German company could decide to exit the US market.

Belgacom (BELG BB)’s Q3 2012 results were solid. It’s got a net debt far

below the sector average, a robust cash flow and an attractive dividend

policy.

However, Telenet’s success on King & Kong mobile plans (and Proximus

cutting its mobile tariffs in September) could increase the competition

on mobile data pricing. Belgacom may have to decrease further its

tariffs, for both Consumer and Enterprise divisions. A price war scenario

on the Belgian mobile market could be a worry.

The long Deutsche Telekom (DTE GY) vs. short Belgacom (BELG BB) ratio

has a current value of 0.378. We’ll define as our target 0.3941. 0.374 will

be our stop-loss level.

Market Price Data

Deutsche Telekom (DTE GY)

Last Price (€) 8.520

YTD Change -3.98%

Mkt Cap (€ bn) 36.783

Belgacom (BELG BB)

Last Price (€) 22.420

YTD Change -7.67%

Mkt Cap (€ bn) 7.565

Source: Bloomberg

Market Multiples

P/E EPS DY Net Debt/

2013 2011/13 2013 EBITDA

Est. CAGR Est. Est. Est. 2012

DTE GY 13.42 -1.9% 7.55% 2.16

BELG BB 10.76 -5.8% 9.50% 0.93

Source: Bloomberg

Next Report Date & Events

DTE GY Capital Markets Day Dec. 6th, 2012

FY 2012 Results Feb. 28th, 2013

BELG BB FY 2012 Results March 1st,

2013

Source: Companies' web site