Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) has been on the rise ever since the company announced that it was selling its handset business to Microsoft Corporation (NASDAQ:MSFT) earlier in September. The rationale for increased price targets has focused on the company’s comparable cash wealth after the deal, and the cutting off of the cash-losing business.
In a new report, Jefferies puts a Hold rating on Nokia stock with a price target of 4.25 Euro. On today’s market, shares in the company jumped by more than 6 percent to 4.68 Euro. The analyst Lee Simpson is worried that the substantial rise in the value of Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) shares may be based on false hope as the company’s financials are more complicated than they initially appear.
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Simpson thinks that Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) is getting a good deal on its handset sale. The problems arise with specific parts of the deal, and the complex financial situation that Nokia has gotten itself into in recent months as a result of its cash burning business. Of particular note, according to Simpson, is the company’s sale of convertible bonds to Microsoft and the debt the company acquired when it bought half of NSN.
The convertible bonds, which Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) sold to Microsoft Corporation (NASDAQ:MSFT) to be redeemed against the handset deal, can be converted to 8.9 percent of the company’s stock if that deal does not close. If it does close, Nokia still owes 1.5 billion Euro to Microsoft.
Nokia has already acquired a large amount of short-term debt in order to pay for its acquisition of NSN. The company will likely be using the Microsoft debt to pay off the Siemens debt. That’s a poor situation and it will likely impact the company’s cash flow this year.
Nokia’s huge rise
Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) shares have risen by more than 60 percent in the last five days of trading since the firm announced it was divesting itself of its smartphone business early in September. Whether or not the firm’s shares can keep up the incredible rise is questionable, but Simpson clearly thinks yesterday was the time to take a wait-and-see approach on the deal.
Nokia was saved by the deal that saw it shed its handsets, but that doesn’t mean it’s smooth sailing from here. Stock in the company probably won’t go up forever, and investors need to decide when is the best time to get out.