Telefónica slides to €3.39 as market hunts for a floor

Telefónica keeps bleeding on the stock market: neither the dividend nor Brazil can prop it up

A stock that falls the day before paying a dividend and, instead of bouncing back the next day, keeps dropping. That is the scene that sums up the unease of part of the market with Telefónica, a stock that has gone months without lifting its head and that, after the plunge tied to the elections in Brazil, is trading around €3.39 after hitting €3.75 the previous week. The question running through every investor conversation is no longer whether there will be a rebound, but whether a real floor exists or whether today's floor will be tomorrow's ceiling.

The plunge and the Brazil effect

The fall accelerated with the Brazilian electoral shock, a market that weighs on the operator more than many Spanish shareholders care to admit. The most repeated analysis holds that this is an overreaction: the company has not changed overnight, and anyone who believes the new political scenario hurts the telecom should short the stock. On the other side, the pessimistic reading stresses that Brazil is precisely the business that props up the rest of the group, the football that sells fiber at a premium over competitors. If that pillar wobbles, the castle loses its foundations.

The dividend is no longer what it was

The dividend cut in half has destroyed the main buying argument of the old Telefónica. Those who held it as passive income now see an attractive yield on paper, yes, but on a price that keeps falling. The calculation making the rounds is simple: if the payout shrinks and the share price drops, the investor collects less and suffers more. Some admit the temptation exists, even if only to bury money for a decade. Others reply that a very cheap yogurt is probably spoiled and expires in ten minutes.

Football, fiber and the competition eating the business

The harshest diagnosis points to the lack of competitive advantage. The operator's services are more expensive than those of rivals offering similar quality due to regulation, and Spanish customers pay for the football. When there is no football, nobody pays double for fiber. Add to that the competition from low-cost operators, which have a presence in Spain that does not exist in other European markets, and a steady drip of subscriber losses that translates into a declining ARPU: customers remove services from their plans and move to the group's own cheap brands.

The comparison with Deutsche Telekom that stings

Twenty years ago Telefónica and Deutsche Telekom were on a par. Today the German company is worth several times more. The most repeated analysis points to an anomaly visible in that comparison: either the Spanish company is worth double or the German one half, because the gap between them is too wide given what their income statements say. The German trick, they say, lies in the US market, an oligopoly that keeps prices and margins high. The Spanish company, meanwhile, has been weighed down by domestic competition and a regulation that has eaten away its ground.

Touching a nerve: management and politics

The recurring criticism is not only financial. Critics point to a company colonized by politics, with executives appointed through connections rather than merit, and an oversized internal structure. The sale of Latin American subsidiaries at a loss, except Brazil, is described as a disorderly flight to reduce debt. The result, according to this camp, is the worst of a public company and the worst of a private one: a liner that has been sinking for thirty years, where each day is worse than the last but better than the next.

Book value and the capex that eats everything

The figure most often cited to justify an entry is the book value, put at around €3.12 per share by some estimates. The share price hovers around that number, which invites thoughts of an opportunity. But the annual capex, in the order of €6 billion, eats up much of the cash and limits any corporate move. Without the capacity to buy anything meaningful without taking on debt, the operator is trapped between the need to invest in infrastructure and the need to pay a dividend that no longer convinces.

The opportunity for those willing to wait three years

Against the prevailing pessimism, the patient investor's thesis holds that every company has a price at which it is worth buying in. Telefónica has plenty of baggage and politicians, but also a dominant position, infrastructure and a competitive advantage that is hard to replicate. The best earnings, they remind us, arrive on average three years after the investment. Whoever sets the price and trusts the fundamentals can sleep easy. The problem is that the market has gone months without giving a single sign that the moment has arrived.

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Meanwhile, the stock keeps searching for a floor that nobody manages to draw. The twenty-year low is around €2.95. If that does not hold, the question stops being when it rebounds and becomes how much further a stock that has already lost the confidence of half the market can fall.