Nokia after Q3 report – attractive valuation

On October 15 Nokia reported a shocking loss of EUR 900 million for the third quarter, a story that made the share price fall with roughly 10% on the day of reporting. The loss was largely due to Goodwill impairment in the Network company, NSN, where Nokia now has written off all Goodwill. In the aftermath, the share price has continued to decline and when closing today at 8.85 EUR, it was 14% down from the opening price on the day of the report.

When looking at analysts’ estimates for Q4 and 2010 after the report, we find that most analysts have lowered their estimates slightly. Handelsbanken has cut their EPS estimates for 2010 to 0.65 EUR.  Piper Jaffray increased  their 2010 estimate (with one cent)  to 0.70 EUR, although recently reducing it.

Nokia reported a non-IFRS result of 0.17 EUR for Q3, a pro-forma result thought to give an accurate view of the core performance excluding one-time effects.

Valuation: Using a conservative 0.15 EUR for Q4 and 0.65 EUR EPS for the full year 2010, a DCF analysis yields a fair value of 10.5 EUR. This shows that the immediate reaction after the report was exaggerated, and that now is a good time to take a position prior to the Q4 report.

Summary of investment bank’s comments on the Nokia report (Swedish).