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Nokia's share price: can a new CEO turn things around in the 5G race?

If Nokia’s [NOK] new CEO is to turn things around, he’ll need to make the Finnish mobile manufacturer a world leader in 5G. Will he succeed? And what will that mean for the company’s share price?

Nokia's new CEO Pekka Lundmark is unlikely to have a honeymoon period. To turn around the flagging Finnish mobile phone manufacture he’ll have to make it a global leader in 5G. A Herculean task considering Nokia’s share price has plummeted and shareholders are rapidly losing confidence. Is he up to the challenge?

 

 

What’s happening at Nokia?

Lundmark takes over from chief executive Rajeev Suri, who resigned last week. Nokia has already experienced several changes at senior level. This time they will be hoping to replicate rivals Ericsson. Their news that CEO Borje Ekholm is to be replaced by Saab CEO Hakan Buskhe has boosted investor confidence. Those invested in Nokia’s share price will be hoping Lundmark can do the same at Nokia.

 

How has Nokia’s share price reacted?

News of Lundmark’s imminent arrival has done nothing to help Nokia’s share price. Last week it closed down over 8%. 

The hope will be that Lundmark's new strategy, once revealed, can turnaround a longer-term malaise. Over the past 12 months, Nokia's share price has plummeted more than 40%. Things were particularly bad late October when the share price dropped almost 24% in a single day. Triggering this mammoth selloff was Nokia’s announcement that it would miss its 2020 outlook and was suspending the dividend for 6 months. 

Yet, to revitalise the company, Lundmark will need to get Nokia's 5G program up and running.

40%

Nokia's share price drop over past 12 months

  

Why is 5G so important?

5G is the next big thing in mobile networks. To get a sense of the opportunity, you only have to look at Nokia’s main rival, Apple. According to Wedbush analyst Daniel Ives, Apple's share price could see a 30% jump on a 5G “super cycle”. If Nokia can get in even close to that it'll be good news for shareholders.

"The major imperative remains to execute on the 5G turnaround which will be the key ingredient to restoring the faith of global telcos and investors,” analysts at Deutsche Bank said in a research note on Tuesday.

“The major imperative remains to execute on the 5G turnaround which will be the key ingredient to restoring the faith of global telcos and investors” - Deutsche Bank analysts

 

What challenges does Lundmark face?

Building a 5G empire doesn’t come cheap. Nokia’s annual report shows that it tapped the European Investment Bank for a €500 million loan last month. It needs to do this as it has lost ground to both Ericsson and Huawei.

According to MarketWatch, Nokia has 68 commercial 5G contracts worldwide. That's well behind Huawei's 91 and Ericsson's 81. Yet, in Nokia's favour, it has all nationwide operators in the US - a huge market.

Analysts at Liberum think Nokia's options look limited:

“Nokia is currently in a difficult place, having to increase investments to catch up with Huawei and Ericsson, at a time when its margins are under severe pressure. Cash levels have also declined sharply in recent quarters. There is no clear way out of this predicament, at least in the medium term in our view.”

“Nokia is currently in a difficult place, having to increase investments to catch up with Huawei and Ericsson, at a time when its margins are under severe pressure. Cash levels have also declined sharply in recent quarters. There is no clear way out of this predicament, at least in the medium term in our view” - Liberum analysts

 

Is it time to buy Nokia?

Analysts have pinned an average $4.94 share price target on Nokia. Hitting this would represent a 38% upside on the current share price. While the scope of the challenge Lundmark faces shouldn’t be underestimated, if he can make Nokia a force in 5G, then things could well pick up. And with the share price trading near its 52 week low, right now could be a buying opportunity for investors.

 

Market Cap$20.31bn
EPS (TTM)-0.1920
Return on Equity (TTM)0.12%
Quarterly Revenue Growth (YoY)0.50%

Nokia share price vitals, Yahoo Finance, 09 March 2020

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