LONDON (ShareCast) - (ShareCast News) - Telecoms stocks should 'outperform' under a 'Leave' scenario, but even in the case of 'Bremain' names such as Sky, BT Group and TalkTalk should see a rebound, analysts at UBS said.
In case of Brexit, UBS's strategy team foresaw three potential effects; sterling re-rating to parity versus the euro, UK GDP gross domestic product three percentage points lower through 2020 than would otherwise be the case and there could be a 'knock-on' effect on the Eurozone's GDP.

Nevertheless, analyst Polo Tang admitted intense competition and regulatory cuts had been a more notable driver of the sector's performance in recent years.

Even so, UK-centric stocks such as Sky, BT and TalkTalk had already underperformed going into the EU referendum and should the UK vote to to remain Tang said he would expect to see a rebound in the shares of those three names.

The analyst also noted that Vodafone had limited exposure to the UK (about 10.0% of its earnings before interest, taxes, depreciation and amortisation) "but will be a beneficiary of any currency de-rating (50% of EBITDA is EUR)".

Year-to-date, the telecoms sector had fallen 15.0%, underperforming the DJ Stoxx 600 by 4.0%.

"Underperformance is explained by the rebound in commodities, lack of M&A in the sector and lacklustre Q1 results," he said.

"However, in a scenario with a weak market post a leave vote, we would expect Telecoms to outperform given its relative defensiveness and attractive dividend yield (5%)."

During the height of the euro crisis, the Telco sector outperformed, more specifically names with low leverage (4%), while those with higher leverage/higher beta underpeformed.

Among the stocks that met UBS's criteria for low leverage and attractive dividend yields were Proximus, Swisscom, Orange, Telefonica Deutschland and KPN.

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