Telefonica Q1: Small beats with guidance reiterated

Research evidence excerpt

Telefonica Q1: Small beats with guidance reiterated

Akhil Dattani AC Europe Equity Research

(44-20) 7134-4725 14 May 2026 J P M O R G A N

akhil.dattani@jpmorgan.com

Investment Thesis, Valuation and Risks

Telefonica (Neutral; Price Target: €3.90)

Investment Thesis

Back in January, Telefonica’s board surprised the market by replacing its veteran Chairman

and CEO, with Mr. Marc Murtra. Over the interim, Telefonica has announced numerous

management changes. Deals have failed to materialise in 2025, and will likely spill over into

2026, with anticipated M&A announcements and rights issue decisions delayed into next

year. We believe tech and German M&A are top priorities. Conversely, a VMO2 buy-out

seems extremely unlikely. In our view, management needs to address the long-standing

criticism of Telefonica’s stretched balance sheet and dividend pay-out ratio, whilst

simultaneously delivering M&A that enhances the group’s future returns. Given the vast

range of permutations, we remain Neutral. If and when management delivers the clearing

event we hope for, it is conceivable we upgrade to OW. Conversely, if guidance, leverage,

and shareholder return remain stretched, we could equally cut to UW.

Valuation

Our sum-of-the-parts valuation returns a Dec-27 €3.9/share fair value. This is based on

individual DCF valuations for Telefonica’s local businesses. We assume ongoing structural

FX drags for both Brazil and Argentina.

Risks to Rating and Price Target

Upside risks include:

• Synergistic M&A in either Germany or Spain, that also delivers market repair.

• Balance sheet pressures being alleviated through asset sales, or a well-structured rights

issue.

• Further stake building from stc and the Spanish government.