Nokia Corporation (NOK) Is Still A Buy As Cash Position Improves: RBC

Increasing Nokia Corporation (NYSE:NOK)’s price target to $4, a report from RBC states, that the demand for Nokia’s new devices is encouraging, and its cash position also looks ‘modestly better’. The report says, “NSN is providing some sorely needed cash from operations, while asset sales (e.g.,Vertu) are also cushioning the balance sheet”. The demand for new Lumia devices is positive, but most of it “may be the low, subsidized price of $99”.

Nokia Corporation (NOK) Is Still A Buy As Cash Position Improves: RBC

For this holiday season, carriers are positioning the Windows 8 Lumia 920/820/822 in the “best-value” category. Lumia 920 is teasingly priced at $99 with a two-year contract at AT&T, and at $450 without commitment. In Europe, the high-end Lumia is priced at €600 ($778) without a contract and €50–100 ($65–130) with commitments. With aggressive promotion of Windows 8 from Microsoft Corporation (NASDAQ:MSFT), “Nokia’s Lumia 920/920/822 portfolio has been experiencing sell-outs at carriers and major retailers in the US AT&T Inc. (NYSE:T),, Inc. (NASDAQ:AMZN), Wal-Mart Stores, Inc. (NYSE:WMT)”. The report believes that compared to other competing devices Lumia 920 is still pretty heavy (185gms vs.GS-III’s 133gms, HTC 8X’s 130gms). Despite the weight issue, the report expects Nokia to exceed the 6.5 million smartphone units forecast.

Apart from a good show from Lumia portfolio, demand for Nokia’s Corporation (NYSE:NOK) Asha smartphones, “driven by increasing smartphone penetration in the entry-level smartphone market with data-points showing good uptake in Asha-305/311”. According to the report, Nokia’s lower-end devices and mass-volume feature-phones, command higher contribution margins to mobile devices, at the moment.

The handset maker’s working capital is improving, with a better operational performance in NSN, and is expected to improve further by ‘€150–200M’ from the sale of Vertu assets. Nokia’s out-flows are expected to be around €650M with €400M in Devices and €250M in NSN restructuring. The report believes “Nokia still needs to improve its net-cash of €0.98/share, but the situation may not be as dire as previously thought”.  Nokia Corporation (NYSE:NOK) has an ‘expansive’ patent portfolio that ensures a guaranteed payment of around €500M per quarter or €2B per year.  On Nokia’s patent portfolio, the report believes, “that Nokia’s patent portfolio would be conservatively valued at least €2B to account for the steady annual cash flow, and it may even be worth as much as €3B to companies such as, Inc. (NASDAQ:AMZN) or Microsoft, which may be interested in building their patent trove”.

The report expects Nokia Corporation (NYSE:NOK) to spend additional cash by the year-end and may consider additional asset sales, while improving its working capital and continuing with its restructuring initiatives to improve its cash position.