Though SEB cuts its price rating for Nokia, they reiterate their Buy rating on greater transparency and growth investments in NSN.

Nokia Corporation (ADR) (NOK)

Nokia’s Q4 below expectations but positive triggers coming shortly

Overall, Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s Q4 report fell short of expectations. The margin outlook for NSN is somewhat disappointing with revenues under pressure in H1 and growth investments in HERE will burden its margins in 2014. Also, the pre-results comparison figures showed that Advanced Technologies’ cost base was somewhat higher than we expected. Still, we believe that growth investments in NSN are set to stabilise revenues in H2 and expect that the segment’s margin will reach the higher end of the guided 5-10% range in 2014. Also, we see positive triggers ahead, with a new strategy and dividends (we expect a base dividend of EUR 0.2 and an extra of EUR 0.5-1 a share). Moreover, the transparency of the investment case has improved and will do further. We have cut our target price to EUR 6 and reiterate our Buy rating.

EPS estimates down 18% for 2014 and 8% for 2015

Following the Q4 results we have lowered our clean EPS estimates by 18% for 2014 and 8% for 2015. Our estimate downgrades come more-or-less equally from all the segments. For Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s Advanced Technologies we have incorporated our better understanding of the cost base based on the comparison figures. For NSN we have made some adjustments to our revenue and margin estimates. For HERE we have incorporated the communicated higher growth investments.

Target price down to EUR 6 on NSN and Advanced Technology

Our target price methodology is unchanged, based on an SOTP of new Nokia. We have cut our target price from EUR 6.4 to EUR 6 due to a lower value for Advanced Technologies (cost base higher than assumed) and some trimming of Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s NSN earnings – the fair value of both segments being lowered by roughly EUR 0.2 per share.