When Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) and Microsoft Corporation (NASDAQ:MSFT) announced that Microsoft would acquire Nokia’s devices division, the industry was shocked. But how do we value what’s left of Nokia after the devices division is gone? Analysts at JPMorgan Cazenove provide their analysis of this question using a sum of the parts analysis.
Valuing Nokia Siemens Networks
Sandeep Deshpande and the rest of the analyst team used three different multiples to value Nokia Siemens Network. They said on average technology companies with a 10 percent margin over their cycles are valued at around one times EV/ sales, 5 percent over the cycle at .5 times EV/ sales.
They note that Nokia Siemens Network had a 9.4 percent margin in the first half of the year, but it still has to build a track record in terms of margin. The track record is needed because this margin has only been seen over the past year. As a result, they used .5 times, .75 times and one times EV / sales for their valuations of this part of Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V).
This would suggest a valuation for Nokia Siemens Networks of between €6.068 million and €12.136 million.
Nokia’s Here maps
The analysts said their valuation for Nokia’s HERE maps and location services business is also rather difficult to determine because it does not have any clear peers. The division reported a 14 percent margin of 2012, although it declined to break-even in the first half of 2013 because of unfavorable mix.
They said historically this division had a margin of over 20 percent, so on average, assuming a 10 percent margin, they value the division at €1.015 million, based on 1 times the division’s estimated 2014 sales.
Nokia’s new patent licensing business
The analysts set Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s patent licensing business apart, calling it a “new separate business at Nokia.” As a result, they said it also needs to be valued in different scenarios.
They estimate that the company’s intellectual property had revenue of about €500 million in 2012, along with an estimated margin of around 80 percent. They said the only question now is how Nokia’s patent licensing business grows over the next few years. They note that many large handset companies aren’t paying significant royalties to Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V). Instead, the key players are Apple Inc. (NASDAQ:AAPL), HTC Corp (TPE:2498) and BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB).
So as a separate business, they believe Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) will pursue a number of handset companies for royalties and try to grow this revenue stream. They don’t believe it would be correct to value this as flat or declining revenue, so they value it using EBIT multiples, on a growth model and using the Nortel precedent.
Under the Nortel precedent valuation, they estimate that Nokia’s patent business is worth around €5.639 million, which is approximately 10 times Nokia’s patent families. Assuming 5 percent growth through perpetuity, they estimate that this business is worth €8.4 million. Using a 10 times EBIT model, they estimate that the division is worth €4 million.