Deutsche Telekom shares on a hunt for direction

Deutsche Telekom shares have been stuck in a price range between €14 and €16 since February, and only a break out from these levels would open up new trading opportunities.

T-Mobile logo
Source: Bloomberg

The German telecom giant’s American subsidiary T-Mobile US, which since 2013 has grown from being the problem child to the growth driver for the whole group, is providing solid support. Selling this division would significantly increase Deutsche Telekom’s cash holdings and provide ample ammunition for its strategic long-term goal of market leadership in Europe. The Bonn-based company is also looking for new, future-oriented business segments. With the introduction of the 5G mobile telephony standard announced for 2020, the telecom provider is also keen to promote its product portfolio in terms of cloud computing, the Internet of Things or Networked Driving.

Deutsche Telekom is already offering cloud services via its T-Systems subsidiary and has set up a new data centre in Saxony-Anhalt with impressive storage capacities. In this context, a cooperation with Microsoft was launched last year, which allows US customers of the Nasdaq-listed company to store their data in Germany with the advantage of much more stringent data protection guidelines than on the other side of the Atlantic. Deutsche Telekom has set itself the goal of growing around 20% a year in the cloud business, and is currently on track to achieve this with first half sales for this unit rising by 22% to around €700 million.

Analysts are on the whole positive about the stock. Nineteen have it at buy, 14 at hold and just four at sell, according to data compiled by Bloomberg. HSBC recently confirmed its €18 price target, noting T-Mobile US was developing faster than the US market. Goldman Sachs has an even more optimistic price target of €19.50, with its analysts noting declining competitive pressure in the domestic mobile market and appreciating the stable profitability of the company’s fixed line business.

Technical analysis

Looking at the Big Picture, Deutsche Telekom shares have been in an ascending channel since November 2014. However, despite this wider ascendancy, price has been pulling back ever since hitting €18 resistance back in early 2015. The weighted 10-month moving average has been falling alongside price, highlighting the fact momentum remains to the downside. This moving average has also been utilised as reliable resistance, capping any attempts to move higher.

Should this current downward momentum continue, it is worth noting the support zone between the ascending trendline (around €14), and historical support (currently €13.30). For now, we look likely to continue the sideways range that has been in play over the past two-years. However, should we see a break out of this range, the preference would be for a move through €18, subsequently bringing €20 resistance into view.

Deutsche Telekom on a monthly chart

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.

Find articles by analysts