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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: J Mako who wrote (45227)	10/29/2011 12:35:19 PM
From: Jurgis Bekepuris	Read Replies (2) \| Respond to of 78751

NOK. Good question. Let's look at Q3 NOK numbers: nokia.com I think that NOK is somewhat the right company to be valued by PSR. Assuming that sales are around the bottom this year and will stay flat or recover next year, the PSR is low at ~0.5. The opportunity is that NOK goes into 2012 with completely new software stack - Microsoft Windows Phone - and respective phone lineup. NOK still has a respectable brand equity and market share in basic phones worldwide and they can turn that into the smartphone share now that they are not stuck with Symbian and its problems. Windows Phone does not have high acceptance so far, but the reviews are positive, so it's not a horrible choice. And IMHO Apple/Android entrenchment is overestimated. Now, if I am wrong and NOK cannot maintain or rise sales then we go to part 2 of this evaluation. :) Part 2: sales suck, what are the assets? ~Euro14B book value minus ~7B intangibles. Leaves euro~7B (US$10B) tangible book with ~2B property/plant/equipment. Not great. NOK does have some attractive assets that probably would value it above the tangible book: Navteq, patents. However, the patent buyouts have slowed down and it's clear that only Microsoft could buy NOK (perhaps INTC could too, but I doubt they are in this game). Still I think that US$15-20B is a level where NOK would be quite attractive as a purchase. So, I'd say on asset side we have a low bar valuation around there. That's still ~30% down from here. The upside is more fluid. Assuming current sales and 5% net margins and 15PE, you'd get to 37B valuation. Assuming sales grow 10% and they can get 6% margin, you'd get ~53B valuation. That's still less than 2x from current price. So perhaps I was overoptimistically guessing more than 2x upside. Overall, it does not look like there is a great risk-reward here, unless NOK surprises more on upside than I estimate. What do you guys think?