Nokia Corporation (ADR) (NOK) A Buy At The Dips: RBC Analysts


Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) is restructuring its business, and analysts at RBC Capital Markets are watching over patent monetization and capital returns as further catalysts to push the stock price to their best case scenario of $11. A delay in conclusion of the deal with Microsoft Corporation (NASDAQ:MSFT), and an ongoing tussle with Indian tax authorities may result in some volatility for the stock, believe RBC analysts Mark Sue and Ameet Prabhu, who view dips as a buying opportunity.

Delay due to Korean and Chinese authorities

The Microsoft-Nokia deal, which was supposed to close in the first quarter, is now postponed to April. Analysts believe that the delay in concluding the deal is related to approval from Korean and Chinese authorities, who are demanding IPR licensing concessions from Microsoft to favor the local smartphone players. “It’s a timing thing and we do expect an eventual close,” say analysts in a report on March 21st.

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Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) is also facing mounting tax issues in India, which could prevent the company from transferring its facility as part of the D&S sale. As per the new court order, the Finnish firm has to guarantee more cash to meet the Indian government standards, which would result in further delays. According to analyst, though Nokia is selling the assets to Microsoft, the tax liability could still be pinned to Nokia post-sale.

Presenting a solution, analysts says that Nokia may “isolate the problem by operating the facility as an arm’s length EMS partner to Microsoft in the near-term,” and in the long term, the company would only have to shut down the facility, and lower its losses.

Post sale Nokia may announce buyback, dividend

Nokia’s IPR portfolio is recognized well by the rivals, which is evident from the recent settlement with HTC and ongoing dialogue with Samsung. Analysts expect Nokia to take a careful approach towards capital allocation: debt repayment, dividend, stock buyback and corporate M&A. After the conclusion of the deal, Nokia could pay some of the debt resulting in lower interest expense of €250 million. Also, the company might announce a share buyback of €300-€500 million and a regular dividend of €0.20, resulting in a “conservative” dividend yield of 2%, according to analysts.

RBC analysts have an Outperform rating on Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) with a price target of $9.

Correction: earlier the article incorrectly stated the source as RBS.