This document presents an investment case for a pair trade of going long on TeliaSonera and shorting Tele2. TeliaSonera faces potential cash inflows from transactions including the sale of its stake in Megafon and potential sales of its Spanish and Kazakhstan businesses. However, Tele2 faces some operational headwinds in Russia with no near-term spectrum award and uncertainty around a potential fourth license in the Netherlands. The document defines a price target and stop-loss level for the pair trade ratio of these two companies.

1. Pair Trade: Long TeliaSonera - Short Tele2
Tuesday, October 23rd 2012
Companies Description Investment Case
TeliaSonera (TLSN SS) faces a number of potential cash inflows that
could support the shares:
 TeliaSonera sold its 8% indirect stake in Megafon in Q2, but only
received 20% of the total proceeds ($1.45bn). The rest should
be paid in four annual installments. Megafon is due to list via an
IPO;
 In Spain, according to the press, TeliaSonera hired banks to
advise it on the sale of its Spanish business Yoigo;
Market Price Data
 In Kazakhstan, TeliaSonera could also be planning to IPO a stake
TeliaSonera in its local company.
Last Price (SEK) 44.480
YTD Change -4.90% TeliaSonera intends to deleverage its Balance Sheet (although the
company’s net debt/EBITDA is not especially high by the standards of EU
Mkt Cap (SEK bn) 192.602
telcos). But, will the company also return some cash through a special
Tele2
dividend or a buyback? Key risk is market focus to shift back to the
Last Price (SEK) 113.90 fundamental story. Q3 2012 highlighted a deteriorating trend in Telia´s
YTD Change -10.30% Nordic assets.
Mkt Cap (SEK bn) 50.794
Source: Bloomberg Tele2 (TEL2B SS) has a solid business model. However, there are some
operational headwinds that could continue to hold back the stock:
Analysts Recommendations:
 No near-term award of spectrum in Russia. Will Tele2 fall
behind on mobile data, in Russia?
 The company has not yet decided whether to bid for a 4th
license and roll out a mobile network in the Netherlands;
 Investments in Russian and Kazakhstan could penalize Tele2’s
FCF yield.
Source: Bloomberg The TeliaSonera / Tele2 ratio has a current value of 0.3905. We’ll define
Market Multiples as our price target 0.4033 (+3.27%). 0.3831 will be our stop-loss level
(-1.90%).
P/E EPS DY Net Debt/
2013 CAGR 2013 EBITDA Technical Comment
Est. Est. Est. Est. 2012
TeliaSonera 10.38 0.61% 7.76% 1.59
Tele2 9.79 7.70% 10.64% 1.35
Source: Bloomberg
Next Report Date & Events
TeliaSonera YE Report: January 31th, 2013
Tele2 Cap. Mark. Day: Dec. 12th, 2012
Interim Rep.: February 5th, 2013
Source: Companies' web site
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