The Sunday Brief

Connecting technology, telecommunications, and the internet

Value Creation – Long-term charts, Fab Five vs. Telco Top Five (June 7)

by | Jun 8, 2024 | TSB

This was a good week for each of the Fab Five stocks. Led by Apple (+$71 billion) and Amazon (+$82 billion), the group managed to increase their market capitalizations by $309 billion last week, bringing their 2024 gains to $1.544 trillion. Those commentators who erroneously stated that Nvidia’s impressive runup was choking out all other appreciation should take note of each of the Fab Five gains (and that they have been growing at this rate since 2017 if not earlier).

The Telco Top Five had a more muted week, with T-Mobile the only gainer (+$6 billion). In the midst of doing some other research, we came across this interesting net debt waterfall chart from TMUS parent Deutsche Telekom:

We think that this chart explains a lot of what’s going on (or not going on) with TMUS share price. Since DT currently owns more than 50% of the outstanding TMUS shares, consolidated results are shown. Four major things to highlight with respect to TMUS share price:

  1. TMUS is buying back shares (3.3 billion euros or about $3.6 billion). No surprises there.
  2. To keep their share percentage closer to 50%, DT sold 1.7 billion euros ($1.9 billion) in TMUS shares
  3. With the proceeds from the TMUS share sale DT is buying back some of their shares
  4. A stronger US dollar bolstered the value of net debt (actual debt value for TMUS increased slightly to $74 billion – see financial schedule here). This may explain why one of TMUS’ recent debt offerings was in Euros – over 50% of DT’s current net debt is exposed to the ebbs and flows of the US dollar.

The chart provides an interesting picture into how DT manages their debt levels (and why TMUS stock is going to pressured as long as the US subsidiary continues to buy back shares). Said another way, if/when share buybacks stop, we may not see the typical stock price slide.

What triggered this analysis was the announcement this week that the German government (through the state-controlled bank KfW) announced that they would be selling a 2.2% stake in DT (valued at $2.7 billion) to fund German rail expansion. Per this Reuters article, prior to the sale, the German government owned 30% of DT. The article goes on to say that there are no immediate plans to sell any additional shares in the German communications company.

An implied 15% stake in TMUS (German governement holds 27.8% of all DT shares, who hold 52-53% of all TMUS shares) is interesting given little foreign ownership of Verizon and AT&T. It may also explain any future dividend or share repurchase activity.

We ran out of time to discuss, but would suggest that anyone interested in a good Apple WWDC preview to read Mark Gurman’s updates in Bloomberg here. Per last week’s Brief, it’s good to see that all of the AI features will be opt-in (vs manadatory or opt out). We will be covering the announcement in next week’s Brief.

File is below. New Sunday Brief website and Jim’s new job announcement coming in nest week’s Brief. Stay tuned!

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