This years dividend is promised by Telekom at DM0.60 per share. Next year, it will double to DM1.20. For German taxpayers, the gross value is some 40 per cent higher again.
The 1997 dividend is plainly the more relevant for valuation purposes, since Telekom says it is the basis from which future payments will be increased in line with results. At DM25, the lower end of the offer range, this give a gross yield to German taxpayers of 6.8 per cent. At the DM30 end, the yield is 5.7 per cent.
The yield on the 10-year German government bond, meanwhile, is a touch under 6 per cent. This goes a long way towards explaining the enthusiasm of the German public for the offer. Not only is the return more or less in line with bonds, it offers the apparent attraction of earnings and dividend growth.
Non-German investors will prefer to compare Telekom with the German equity market, and to other international telecoms stocks. As for the German market, analysts estimate its average p/e ratio next year at around 14 times.
It appears that Telekoms p/e next year - after an earnings rebound from exceptional charges this year - might be around 13.5 at the lower price of DM25, or 16 at DM20. Given that telecom stocks tend to trade at a slight discount to their home markets, this particular measure would suggest that DM30 is a touch expensive.
When it comes to other telecoms stocks, the picture becomes murkier. There is general agreement that comparing Telekom with non-European telecoms heavy weights, such as AT&T of the US or NTT of Japan, is unhelpful. This is largely because Telekom works within a locally regulated environment, and impending changes in EU regulation will do much to determine its prospects.
The crucial question is which yardstick should be used to compare telecoms companies within Europe. There is general agreement that the old-style price/earnings ratio is unsatisfactory. This is mainly because, in such a distinctively pan-European sector, differences in accounting standards, taxation and the cost of capital make earnings figures inconsistent across national boundaries.
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The obvious answer is to concentrate on cash flow. The most popular from is the US-derived EBITDA, or earnings before interest, tax, depreciation and amortization. This, in turn, is compared not simply with market value - since EBITDA takes no account of the cost of borrowings - but to market value plus debt, less working capital.This is known as enterprise value, or EV. The EV/EBITDA multiple, it appears, has shown fairly close correlation with earnings growth for European telecoms companies in the past.
But this approach has distinct problems. On the one hand, some analysts argue that comparison with existing EV/EBITDA multiples for other European telecoms companies point to a price range for Telekom so wide as to be meaning less. In addition, the company forecasts a drop of some 40 per cent in its enormous debt mountain over the next four years. A ratio based on its present debt level is therefore likely to give a misleadingly high multiple.
If the net effect of those valuation methods is confusing, that is perhaps not surprising. Around the world, the profitability of telecoms companies depends at least partly on government action, and almost everywhere government regulation - or deregulation - is in the process of change.
It therefore follows that valuation comparisons with other telecom companies, inside or outside Europe, are of limited use. The future value of Telekom depends on factors which are beyond the power of investors or the company itself to predict. The best that can be said is that the average of the various methods produces a price more or less within the proposed DM 25 - 30DM range.
But as the most sophisticated of Telekoms analysts would probably concede, the price performance over the next few years remains hard to guess even by normal stock market standards.