12-05-2025
You've probably forgotten the value of the infrastructure this firm maintains
Questor is The Telegraph's stock-picking column, helping you decode the markets and offering insights on where to invest.
Time was when people would use their mobile phones to make calls. Now, even a text – especially from one's offspring – can feel like a luxury.
On the other hand, taking photographs, streaming films or music, shopping, consuming news, gaming and doing 'the socials' are all de rigeur for a modern mobile.
Deutsche Telekom facilitates all these things and more across Europe. The Germany-based global group provides landlines, mobiles and broadband connections to consumers and businesses.
It also provides IT, TV and digital connection services through its own networks, as well as cloud computing and data centres that it both owns and operates – and it is exposed to more of the same in the US through its 52pc stake in T-Mobile.
In short, this self-styled 'digital telco' provides pretty much everything that anyone might need to operate in an internet-dependent world.
The company also boasts strong smart money backing. Its shares are owned by 13 of the best-performing fund managers worldwide, each of them among the top 3pc of the more than 10,000 professional investors whose performance is tracked by financial publisher Citywire.
Based on the strength of their conviction, Deutsche Telekom is AAA rated by Citywire as well as being a constituent of the Citywire Global Elite Companies index, which tracks 74 of the very best ideas from the 6,000 stocks held across top managers' portfolios.
The shares, listed in Germany, have gained more than 40pc over the past year, but remain very affordable. The stock can be bought through the UK's main brokers, although buyers should be sure to fill in the forms minimising withholding tax and check with their provider for any additional overseas dealing charges.
The picture wasn't always as rosy for the formerly state-owned group, which several decades ago was almost brought to its knees by the weight of its debt burden. Like peers across Europe, Deutsche Telekom had spent billions buying licences to operate 2G networks.
When it was clear that its debt levels were unsustainable, the group was forced into a painful restructuring amid losses, write-downs and tens of thousands of job cuts.
The Deutsche Telekom of today is still running up debts – it has had expensive 5G network infrastructure to build after all. But the big difference is that its borrowings are now much more manageable.
Net debt equates to less than three times earnings before interest, tax, depreciation and amortisation (Ebitda). That's within the company's target parameters and comfortable given the reliable nature of demand.
Financially, Deutsche Telekom set records last year, clocking up adjusted Debita of €43bn on net revenues of €16bn. The vast majority of its turnover comes from service revenue, which excludes product sales such as mobiles and landline phones.
The group, which was privatised 30 years ago, remains a market leader in Germany and is the biggest telecom operator in Europe. It also has an IT provider, T-Systems, which essentially 'digitalises' businesses, including in the UK.
But the jewel of Deutsche Telekom's crown for the past five years has been T-Mobile, the US group it has majority owned since 2023. T-Mobile operates the largest 5G network in America and has been riding high on demand among consumers and businesses for high-speed internet connections.
It is the second-largest mobile operator in the country with 130 million customers and it is expecting customer numbers to continue to rise in the year ahead.
This success has meant that the US has become an increasingly important part of the group, accounting for 46pc of shareholder profits last year.
Given the strong momentum in the US telecoms market, and for T-Mobile in particular, the business is likely to underpin Deutsche Telekom's earnings in the years to come.
Indeed, the group plans to use the surplus funds in part to increase its stake in T-Mobile, the value of which currently represents 82pc of market capitalisation and 45pc of enterprise value (market cap plus net debt).
Deutsche Telekom shares carry a dividend yield of just over 3pc and cash returns are bolstered by share buy backs that should be worth up to €2bn in total this year.
Meanwhile, the stock trades at a respectable multiple of around 15.4 times forecast earnings. Given T-Mobile's shares are valued at 21.4 times expected earnings, that means the group's market leading European operations are valued at an attractive 10.3 times forecasts.
Miles Costello is a contributing journalist for Citywire Elite Companies.
