By David Latona and Jesus Calero
MADRID (Reuters) -Investors wiped some 3 billion euros ($3.5 billion) off Telefonica’s market value on Tuesday after the Spanish telecoms giant said it would halve its dividend next year as part of a new five-year strategic plan.
The strategy spearheaded by CEO Marc Murtra, who took over in January, seeks to reduce rising debt and prepare for M&A opportunities with a long-term ambition to lead market consolidation in Europe.
But investors appeared underwhelmed, with shares in the company plunging 13% by market close – their biggest daily fall since the COVID-19 pandemic hit five years ago – against a flat Spanish blue-chip index, LSEG data showed.
“We’ve had to make tough decisions, but focused heavily on value creation and fundamentals … markets can sometimes be noisy,” Murtra told an afternoon news conference.
The company intends to pay a dividend of 0.15 euros ($0.17) per share in 2026, allowing it to reduce its net debt to annual core earnings ratio to 2.5 times, from 2.9 times now.
PUSH TO DELEVERAGE
Telefonica said its debt rose in the third quarter to 28.2 billion euros, from 27.6 billion euros in June, citing dividend payments, investments and mounting costs.
Lower debt would guarantee the company would be ready to seize acquisition opportunities as they arise and generate value for shareholders, Telefonica said.
While Murtra declined to address potential M&A operations, he said Telefonica contemplated capital increases as a way to fund deals with clear cost and network synergies.
According to an Oliver Wyman report published on Tuesday, Europe’s telecoms industry is on the verge of the biggest M&A wave in decades due to market maturity and limited growth, industry fragmentation, the need for national data sovereignty and increasingly favourable regulatory attitudes toward consolidation.
Telefonica’s plan also forecasts annual revenue and adjusted core profit growth rates of between 1.5% and 2.5% until 2028 and between 2.5% and 3.5% for 2028-2030.
The company intends to boost free cash flow by reducing operating expenses by a quarter, including through using AI in customer services, and lowering spending on capital.
DBRS Morningstar analyst Javier Correonero described the new plan as underwhelming, adding he was sceptical about the guided step up in growth for 2028-2030, since real value creation required market consolidation with minimal remedies.
CFRA Research lowered its recommendation for American Depositary Shares in Telefonica to “sell” from “buy”.
“While we think the portfolio changes are effective in reinforcing positions and lowering debt, we think halving dividends may shock investors,” CFRA analyst Adrian Ng said in a note.
($1 = 0.8575 euros)
(Reporting by David Latona, Jesús Calero, Inti Landauro and Andres Gonzalez; Additional reporting by Emma Pinedo; Editing by Kirsten Donovan and Ros Russell)
