Raised target prices on Tele2 and Telenor while TeliaSonera faces “political risk”.

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Last year the Nordic telecom companies expanded their domestic mobile subscriber bases, thanks largely to growth in mobile broadband. This upswing is likely to continue, according to new report.

“We expect this trend to continue, and given already low mobile termination rates (MTR), the Nordic markets might see better total mobile revenue growth than elsewhere in Europe”, Dominik Klarmann, European telecoms analyst at British HSBC Bank, said in a report.

“However, we also expect domestic mobile capex to rise as data traffic explodes and 4G services attract early adopters – TeliaSonera has launched LTE-based services in Sweden and Norway, and Telenor and Tele2 are set to follow in 2010”.

An improving macro situation should also stimulate usage and penetration in emerging markets, from which all three Nordic players could benefit.

Dominik Klarmann sees upside potential for shareholder returns in 2010, especially for Telenor, as Nordic companies have leverage and dividend yields well below the sector average.

Recommendations:
• Raised target price on Telenor to NOK100 from NOK75 on higher emerging-market peer multiples and a higher target price for its associate, VimpelCom.

• Raised target price on Tele2 to SEK132 from SEK118 as we switch to DCF valuation from SOTP.

• Political risk related to Russia and the Megafon deal keeps the bank cautious on TeliaSonera despite strong domestic trends and attractive valuation. The bank remains Neutral, albeit it remove the volatility indicator on this rating and raise our target price to SEK54 from SEK48.