What's the Better Foreign Telecom Stock? VEON Ltd. (VEON) vs. SoftBank Group (SFTBY)

Global digitalization is driving a rapid growth in the telecom industry. The promising growth prospects of the telecom industry should help foreign telecom stocks VEON and SoftBank. Let's see which stock is the best buy right now. Continue reading ....

I compared two foreign telecom stocks, VEON Ltd. and SoftBank Group Corp., to see which would generate better returns. This article explains why I think VEON would be a better investment.

The telecom industry, despite several macroeconomic headwinds and a strong demand for managed services and high-speed data connectivity, is expected to continue its growth trajectory in this year and the years to come. The demand for high-speed Internet is growing exponentially with the increasing use of smartphones around the world.

The demand for telecom managed services is also boosted by factors such as improving operational efficiency, reducing operating costs, and increasing use of advanced technology like IoT (Internet of Things), cloud computing, Blockchain, machine learning, AR&VR and AI.

Grand View Research predicts that the global managed service market will grow at a CAGR of 13.6% from 2023 until 2030.

Communications service providers (CSPs) have many opportunities. CSPs deliver value to consumers and enterprises with connectivity options like 5G fixed wireless (FWA) or fiber, and meet the growing demand for edge computing.

According to a Grand View Research report, the global telecom market is expected to grow at a CAGR of 6.2%, reaching $2.87 trillion in 2030. The market will grow mainly due to increased spending on 5G networks and cloud technology.

VEON has a better price performance over the past three months, with an 8.6% return compared to SFTBY’s 2.8% drop. VEON gained 27,6% in the last six months while SFTBY fell 10.4%. VEON has also seen a 56.2% increase in the last year, which is significantly more than SFTBY’s 7% decline.

We think VEON can perform better near-term for the following reasons:

Recent Developments

On May 30, 2023 VEON announced it had sent the required documentation to Euroclear and Clearstream as well as registrars in order to cancel the Eurobonds of VEON held by PJSC VimpelCom.

The cancellation of VEON Eurobonds is a noncash transaction that was necessary to ensure our exit from Russia on time. It also protects VEON, its investors and customers from the risk of future double payments.

VEON incorporated a dedicated AdTech firm, owned 100% by the VEON Group on April 26. The company will offer digital marketing services to support VEON Group Companies in addressing the growing digital advertising opportunities in VEON Markets. VEON AdTech, with its headquarters in Tashkent in Uzbekistan could help VEO digital operators address a $1.30billion market opportunity.

Recent Financial Results

According to preliminary results for the fiscal year ending December 31, 2022 VEON, its mobile users grew by 2.7% over the previous year to 156.9 millions, while its 4G users increased by 19.4%. Cash and cash equivalents for the company were $3.11 billion in 2018, an increase of 27.9% over the previous year. Its net debt was $4.46 billion and fell 45.1% from the previous year.

SFTBY’s net sales in the fiscal year ending March 31, 2023 increased 5.6% from last year to Y=6.57 billion ($47.19billion). Losses before income taxes came to Y=469.13 ($3.37 billion). The company's net loss was Y=970.14 ($6.97billion) and its loss per share Y=662.41. By March 31, 2023 its total assets stood at Y=43.94 billion ($315.58billion) compared to Y=47.54 billion ($341.44billion) on March 31, 2022.

Valuation

VEON's trailing-12 month Price/Sales ratio is 0.17x. This is 86.1% less than SFTBY which is currently trading at 1.22x. VEON's 12-month trailing EV/Sales is 1.57, which is 53% less than SFTBY 3.34. Similarly, VEON’s trailing-12 month EV/EBITDA ratio of 2.22x was significantly lower than SFTBY’s 14.37x.

VEON's 12-month trailing Price/Cash Flow is 0.50x, which is 95.2% less than SFTBY’s 10.30x.

Profitability

SFTBY generates 13.5 times more revenue than VEON in the 12-month trailing period. VEON, however, is more profitable with a gross margin of 100% compared to SFTBY’s 50%.65. VEON has a 70.89% EBITDA margin compared to SFTBY’s 23.23%.

SFTBY has ROE and ROTC at 53.92%, compared to SFTBY’s negative 7.1%, and 1.21% respectively.

VEON's overall rating is B. This translates to a Buy according to our proprietary system. SFTBY, on the other hand, has an overall score of D which translates to a sell. They are calculated by weighing 118 factors to the optimal level.

We also rate each stock according to eight different categories. VEON's Value grade is B, which is consistent with the lower valuation than industry average. VEON’s trailing-12 month EV/Sales (1.57) and EV/EBITDA (2.22x) are respectively 12.1% and 76.8% below the industry averages (1.79x and 9.58x).

SFTBY has a D grade for Value. This is consistent with the higher valuation of SFTBY compared to its peers. SFTBY has a trailing-12 month EV/Sales of 3.34x, and EV/EBITDA at 14.37. These are 86.4% higher and 50% more than the average industry EV/Sales of 1.79x.

VEON ranks #5 among the 45 companies in the A-rated Telecom – Foreign industry. SFTBY comes last.

In addition to the above ratings, we also have rated each stock for Growth, Stability Momentum, Quality and Sentiment. To view VEON ratings, click here. All SFTBY Ratings are available here.

The Winner

The telecom industry's long-term prospects are bright, given the sustained demand for high speed internet and managed services from consumers and businesses, as well as the growing expenditure on wireless communication infrastructures and the rapid technological innovations. Leading foreign telecom companies VEON, SFTBY and SKY will benefit from industry tailwinds.

SFTBY is a poor investment due to its low profitability and growth prospects.

Our research has shown that investing in stocks with an overall rating of Buy or Strong Buy increases the chances of success. Here you can find the best-rated Telecom-Foreign stocks.

What Next?

SFTBY's shares were unchanged during premarket trading on Friday. SFTBY shares have declined -0.83% year-to-date compared to a 10.72% increase in the benchmark S&P 500 Index during the same time period.

Mangeet K. Bouns

Mangeet became a financial journalist and investment researcher because of her keen interest in the stock markets. Mangeet uses her fundamental approach for analyzing stocks to help investors make informed decisions.