Spanish telecoms giant Telefonica was out of favour on Wednesday after both UBS and Exane BNP Paribas downgraded their ratings on the stock.

UBS downgraded the Spanish operator to sell from neutral and lowered the price target to €12 from €13, due to concerns of a falling text-message market (being replaced by free chat software). However, problems in Telefonica's domestic market are expected to be offset by favourable currency exchange rates from its Latin American units and a solid outlook for the region.

UBS lowered its net earnings and cash flow estimates by 4% and cut its 2013 dividend estimate to €1.20 per share.

Another factor that will hurt the firm, claims UBS, is competition in Spain. The broker says that prices in the mobile business remained stable in the first nine months of 2011 but will have to fall due to other operators. Telefonica's prices are now in line with competitors but existing customers are paying a premium, said UBS, which also expects lower revenues.

Meanwhile, Exane BNP Paribas downgraded Telefonica to underweight with a price target of €15.

At 10:24 in Madrid, shares of Telefonica were down 1.14% at €13.44.

M.G.

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