Nokia’s Corporation (NYSE:NOK) fortunes have been mixed of late. Despite sales of over 4 million Lumia handsets, the company reported a $1b operating loss in Q2. The recent increase in its stock price attributed to insider buying as a confidence boosting measure has not worked; Goldman Sachs Group, Inc. (NYSE:GS) downgraded it to a sell on Friday. Apple (NASDAQ:AAPL) and Android devices have dominated the smartphone market and delivered a strong blow to both Nokia and Blackberry maker Research in Motion (NASDAQ:RIMM). Any hope that Nokia’s partnership with Microsoft Corporation (NASDAQ:MSFT) would help it to recover seems to have faded away following Lumia’s relatively minor impact on the market shares of Apple’s iPhone and Samsung, the largest Android handset maker.
We decided to take a look at the story that emerges from the numbers.
In August, Mohnish Pabrai took part in Brown University's Value Investing Speaker Series, answering a series of questions from students. Q3 2021 hedge fund letters, conferences and more One of the topics he covered was the issue of finding cheap equities, a process the value investor has plenty of experience with. Cheap Stocks In the Read More
Our Fundamental Analysis score for Nokia Corporation (NYSE:NOK) is 22. The Fundamental Analysis score is computed relative to peers by aggregating a host of attributes including Operations Diagnostic, Earnings Leverage, Growth Expectations, Leverage & Liquidity etc. (more here on how we compute scores). Our peers for Nokia Corporation (NYSE:NOK) are:
- Apple Inc. (NASDAQ:AAPL)
- Siemens AG ADS (NYSE:SI)
- Ericsson ADR (NASDAQ:ERIC)
- Motorola Solutions Inc. (NYSE:MSI)
- HTC Corp. (2498)
- ZTE CORP H (763)
- Research In Motion Ltd. (NASDAQ:RIMM)
- NEC Corp. (NIPNF)
- Alcatel-Lucent ADS (NYSE:ALU)
Company numbers are TTM (trailing twelve months) or latest available. Share price data is previous day’s close unless otherwise stated.
- Nokia Corporation (NYSE:NOK) trades at a lower Price/Book multiple (0.8) than its peer median (1.4).
- NOK-US’s EBITDA-based price implies better than peer median growth.The market seems to expect a turnaround in the company’s current EBITDA-based return on equity.
- NOK-US has relatively low profit margins and median asset efficiency.
- Compared with its chosen peers, the company’s annual revenues and earnings change at a slower rate, implying a lack of strategic focus and/or lack of execution success.
- Over the last five years, NOK-US’s return on assets has eroded from above median to below median among its peers suggesting declining relative operating performance.
- The company’s median gross margin and relatively low pre-tax margin suggest high operating costs versus peers.
- While NOK-US’s revenues have increased slower than peer median, the market currently gives the company a higher than peer median Price/EBITDA ratio and may be factoring in some sort of a strategic play.
- The company’s relatively low level of capital investment and below peer median returns on capital suggest that the company is in maintenance mode.
- NOK-US does not seem to have the flexibility to raise more debt.
Relative outperformance last month is up from a median performance last year.
Drivers of Valuation: Operations or Expectations?
Valuation (P/B) = Operating Advantage (ROE) * Growth Expectations (P/E)
NOK-US has a low return and high growth expectation profile relative to peers.
NOK-US has relatively low profit margins and median asset efficiency.
NOK-US has maintained its relatively low net margin profile from the recent year-end.
Lagging revenues and earnings imply a lack of strategic focus and/or ability to execute.
Sustainability of Returns
Relative to peers, recent returns have eroded versus last five years.
Drivers of Margin
Relatively low pre-tax margin suggests high operating costs versus peers.
NOK-US has moved to a relatively low pre-tax margin from a Commodity/High Cost profile at the recent year-end.
The stock price is likely factoring in some chance for a strategic play.
Capital Investment Strategy
NOK-US seems to be in maintenance mode.
Leverage & Liquidity
NOK-US does not seem able to raise more debt easily.
NOK-US has moved towards a median liquidity and leverage from a relatively low leverage profile at the recent year-end.
Key Valuation Items
|Company||Market Cap(mn)||Price / Book||Price / Earnings||Dividend Yield (%)|
|Siemens AG ADS||78,768.7||2.0||12.5||3.0|
|Motorola Solutions Inc.||13,744.4||3.4||28.1||1.4|
|ZTE CORP H||4,622.1||1.2||14.3||2.4|
|Research In Motion Ltd.||3,662.8||0.4||N/A||0.0|
|Nokia Corp. (ADR)||8,875.6||0.8||N/A||17.4|
|Best In Class||577,161.0||5.2||28.1||17.4|
Revenues & Margins
|Company||Revenues (mn)||Gross Margin (%)||Pre-Tax Margin (%)||Net Margin (%)|
|Siemens AG ADS||103,252.8||32.2||9.6||6.1|
|Motorola Solutions Inc.||8,350.0||53.2||9.8||6.6|
|ZTE CORP H||13,365.8||29.7||3.0||2.4|
|Research In Motion Ltd.||16,338.0||37.4||(0.2)||(0.3)|
|Nokia Corp. (ADR)||45,476.6||31.9||(9.9)||(10.1)|
|Best In Class||148,375.0||53.2||36.2||27.0|
Key Assets (% of Revenues)
|Company||Capital (%)||Goodwill & Intangibles(%)||Working Capital (%)||Cash & Equivalents (%)|
|Siemens AG ADS||64.2||27.1||13.0||15.0|
|Motorola Solutions Inc.||67.2||17.6||58.4||45.1|
|ZTE CORP H||55.8||0.4||22.3||25.6|
|Research In Motion Ltd.||58.8||20.6||23.1||11.9|
|Nokia Corp. (ADR)||39.7||16.7||18.7||27.2|
Key Working Capital Items
|Company||Inventory DSO||Receivable DSO||Payable DSO||Cash Conversion Cycle*|
|Siemens AG ADS||78.3||76.4||34.6||253.8|
|Motorola Solutions Inc.||21.5||91.9||27.8||296.7|
|ZTE CORP H||57.6||183.1||123.7||117.0|
|Research In Motion Ltd.||22.8||74.8||15.7||379.0|
|Nokia Corp. (ADR)||23.4||81.8||47.6||189.0|
|Best In Class||2.7||34.5||123.7||(29.1)|
|* Inventory DSO Receivable DSO – Payable DSO|
Cash Management Indicators
|Company||Current Assets DSO||Current Liabilities DSO||Cash Float DSO*||Excess Cash DSO**|
|Siemens AG ADS||256.8||209.5||(63.0)||49.1|
|Motorola Solutions Inc.||398.6||185.5||(10.4)||186.3|
|ZTE CORP H||327.1||245.6||2.9||71.3|
|Research In Motion Ltd.||164.9||80.4||221.2||34.2|
|Nokia Corp. (ADR)||245.8||177.4||(201.1)||96.1|
|Best In Class||121.6||245.6||(237.4)||34.2|
|* CurrAssetsDSO – CurrLiabDSO – CashDSO|
|** Excess Cash = Cash & Eqvts – 2%*Revenue|
Key Liquidity Items
|Company||Debt/Enterprise Value (%)||Current Ratio||Interest Coverage (x)||Cash Flow To Total Debt (%)|
|Apple Inc.||0.0||1.6||No interest exp||999.0|
|Siemens AG ADS||14.4||1.2||4.7||47.3|
|Motorola Solutions Inc.||7.3||2.1||8.7||89.1|
|ZTE CORP H||15.1||1.3||1.5||13.5|
|Research In Motion Ltd.||0.0||2.1||No interest exp||999.0|
|Nokia Corp. (ADR)||23.2||1.3||2.1||2.7|
|Best In Class||0.0||2.1||1,989.9||999.0|
Key Cash Flow Items (% of Revenues)
|Company||Operating Cash Flow (%)||Capex (%)||Interest Expense (%)||Dividends (%)|
|Siemens AG ADS||7.5||3.0||1.8||3.2|
|Motorola Solutions Inc.||8.2||2.5||1.5||41.0|
|ZTE CORP H||(4.3)||2.9||1.0||0.0|
|Research In Motion Ltd.||16.0||5.1||0.0||0.0|
|Nokia Corp. (ADR)||3.2||1.7||0.8||4.7|