Equity Research NOS SGPS SA: Capital Structure Optimization

The present document consists of an Equity Research report on NOS SGPS, S.A. (NOS.LS), an established telecommunications company in Portugal. The company offers Fixed Pay TV, Fixed Voice, Fixed Broadband, Mobile, IoT and Data Management services and has an Audiovisuals and Cinema segment. The report issues a BUY recommendation based on a price target of €4.15/share for 2024YE. The valuation implies a 27% upside potential from January 12th, 2024, closing price of €3.27/sh with a medium-low risk. For the valuation, a Sum-of-the-Parts approach was applied to each segment. To support this analysis, other valuation methods were used, and a sensitivity analysis was carried out. Following the original research, and additional analysis was carried out to provide insights into the company’s capital structure. That chapter’s intention is to provide a company specific capital structure recommendation and to value the company with the recommendation calculated. Moreover, it will give us insights into NOS’ current capital structure and whether it is optimal. The analysis is conducted by applying the principles in the paper Capital structure optimization: a model of optimal capital structure from the aspect of capital cost and corporate value (Eleonora Kontuš, Kristina Šorić & Nataša Šarlija 2023). The results indicated that the company is better off with its current risky financing strategy than the optimal conservative financing strategy, which focuses on long-term financing instead of short-term.