Important information and disclosures at the end of this report. www.norne.no

2Q17 Results Analysis

July 18th 2017

Share price: NOK 154.40

Target: NOK 172.00 (previous 147)

Risk: Low

Analyst

Žilvinas Jusaitis +47 21 95 37 03 zilvinas.jusaitis@norne.no

Upgrade on strong 2Q results and promising guidance

Telenor (TEL) released its 2Q17 report yesterday. EBITDA reached all-time

high and topped our forecast by 8%. Telenor revised its financial guidance

and increased EBITDA margin target for 2017 from ‘around 37%’ previously

to ’38-39%’. A share buyback programme was announced for up to 2% of

registered shares. We now turn to positive view on TEL as we see a number

of triggers for the share: strong 2Q figures, promising and solid

performance in Opex reduction programme, unjustified low valuation,

exiting India and VEON and underperformance of peers during the last 3

months. To sum up, we upgrade our recommendation on TEL to Buy with a

target price of NOK 172/sh. (prev. NOK 147).

Revenues in line with estimates, EBITDA reached all-time high

Telenor delivered revenues of NOK 31.47bn in 2Q (organic revenue growth

2.1% driven largely by EM Asia), spot on our estimate. EBITDA came in at all-

time high NOK 12.71bn (40.4% margin vs. 37% in 2Q16 and our estimated

37.4%), 8% stronger than estimated by us and 11% better than consensus.

EBITDA increased 13% YoY, marking margin expansion in all business units

with most notable improvements in Thailand, Bangladesh and Denmark. This

was driven by a strong growth in subscription and traffic revenues in

Bangladesh, and Opex reductions across the group (organic reduction in

Opex of NOK 0.6bn in 1H17). As communicated by the company, the bottom

line was distorted by effects related to VEON (reclassification and change in

market value of NOK -9.1bn) and the gain on disposal of online classifieds

assets in Latin America (NOK 3.4bn). Adjusted for these effects, the bottom

line was at NOK 3.9bn or EPS of NOK 2.60.

Mobile subscription base increased by 2m to 174m, driven by growth of 1.7m

in Bangladesh and 0.7m in Pakistan, partly offset by a subscription loss of

0.7m in Thailand. Capex increased to NOK 5.6m from NOK 4.5bn in 1Q,

implying Capex to sales ratio of 18%, in line with the guidance (16% on YTD

basis).

EBITDA margin target raised to 38-39% for 2017 Telenor reiterated its guidance for an organic revenue growth to be in the

range of 1-2% (1.2% YTD) and the Capex to sales ratio excluding licenses of

15-16% in 2017 (YTD 14.4%).

Sector Telecommunication ServicesReuters TEL.OLBloomberg TEL NO

Market Cap (NOKm) 231,825 Net debt (NOKm) 57,370 EV (NOKm) 293,927 Net debt / equity 113%

Issued shares, mill. 1,501

Share price

Performance1m 3m 12m

TEL 4% 9% 12%OSEBX 0% 6% 24%

Upcoming events3Q17 Report October 25, 2017

Key share data

2Q/17 results 2Q16 1Q17 2Q/17 2Q/17E Deviation 2Q/17E

NOKm Reported Norne Consensus*

Revenues, adj. 30,926 30,458 31,470 31,512 -0.1% 31,249

EBITDA excl. other items, adj. 11,381 11,537 12,719 11,786 7.9% 11,425

EBIT adj. 6,304 6,175 7,282 7,032 3.6% 6,776

Pretax profit 3,793 6,412 2,400 2,201 9.0% 1,062

Net earnings 1,111 4,168 -167 -469 nm -960

EPS (NOK) 0.89 2.78 -0.08 -0.31 nm -0.64

EPS adj. (NOK) 0.89 3.03 2.60 3.32 - -

* SME Direkt

Telenor BUY

2

However, due to solid YTD results and efficiency ambitions, Telenor increased its EBITDA margin target for 2017 from ‘around 37%’ previously to ’38-39%’ (39.0% YTD; our current estimate stands at 37.6% for 2017). The company is guiding NOK 1bn Opex reductions in 2017. Telenor also announced a 2% share buyback programme (30 million shares), representing a return of NOK 4.3bn to shareholders.

Upgrade to Buy after strong 2Q figures and promising guidance We have made positive changes to our estimates after 2Q report: we have increased revenue and EBITDA estimates (EBITDA margin raised from 37.3% to 39.0% for 2017). We also lowered Capex/sales ratio from 16.1% to 15.1%. In addition, after seeing that the company is delivering on its Opex reduction programme, we have lowered our Opex estimates for 2017-2019 to the higher end of the guided range of 1-3% reduction per year. On top of that, we removed 5% discount after seeing strong operations in Norway unit and Emerging Asia, which we were most concerned about. All in all, our target price is raised to NOK 172/sh. (NOK 147/sh.).

We upgrade our recommendation on TEL to Buy from Hold:

Despite that the share rose 8% yesterday, Telenor’s valuation remains very low and the company trades on a large discount to multiples vs. Nordic peers: 2017E and 2018E adj. P/E of 14.5 and 13.4 imply 13% and 15% discount vs. Nordic peers (16.6 and 15.8 respectively). In addition, TEL is trading 9% above its P/E historical average of 13.2, while Nordic peers are trading 23% above the historical average of 13.5

We view this as unjustified as Telenor’s estimated 2017E dividend yield of 5.3% is higher than Nordic peer median of 4.4%

We have had some uncertainties related to weak development in Norway unit and EM Asia subsidiaries. However, 2Q results showed solid performance in these markets, especially in Bangladesh (Grameenphone) and Thailand (Dtac) which returned to growth for the first time in two years. We believe that solid 2Q results in most challenging markets will bring more confidence and act as a trigger for the share

Telenor showed a solid development in its Opex reduction programme announced at CMD and already delivered on 2017 ambition to break the increasing Opex trend. It has reached NOK 1bn reduction in Opex in 1H17 (organic improvement of NOK 0.6bn, NOK 0.4bn due to FX). The management noted that this trend will continue in 2H17. We view the programme as promising and confirming; this should lift EBITDA margin, while delivery on targets strengthens the sentiment in the share

Portfolio simplification: exiting unprofitable India unit and continued sell-down of VEON shares as well as other non-strategic assets

We see a number of triggers for the share ahead as well as unjustified low valuation and thus upgrade our recommendation on TEL to Buy with a new target price of NOK 172/sh., (prev. NOK 147/sh.) derived from the average of Dividend Discount Model (DDM) and Sum-of-the-parts (SOTP) valuation approaches.

TEL vs. Nordic Peers

Sources: Thomson Reuters Eikon, Norne Securities

14.5 13.4 12.216.6 15.8 14.9

5.3% 5.5% 5.6%

4.4% 4.5% 4.8%

0 %

1 %

2 %

3 %

4 %

5 %

6 %

2017E 2018E 2019E

0

5

10

15

20

TEL adj. P/E Nordic Peers P/E, median

TEL div. yield Nordic Peers div. yield, median

Telenor vs. Peers 12m Fwd. P/E

8

10

12

14

16

18

20

22

2012 2013 2014 2015 2016 2017Telenor Average of Nordic peersStoxx 600 Telecom Average of International peers

Telenor share price vs. 12m Fwd. EPS

8

8.5

9

9.5

10

10.5

11

11.5

12

95

105

115

125

135

145

155

165

175

185

195

2012 2013 2014 2015 2016 2017

Telenor share price (lhs) 12m fwd. EPS (rhs)

3

Estimate changes (NOKm)

Act. Est. New Old New Old New Old New Old

Operating revenues 31,750 31,512 31,664 31,331 126,532 125,503 130,435 128,511 132,300 130,222

EBITDA (adj) 12,999 11,786 13,119 12,572 49,308 46,793 53,149 48,858 55,886 50,679

EBITDA (adj) margin 41% 37% 41% 40% 39% 37% 41% 38% 42% 39%

EBIT (adj) 7,282 7,032 8,151 7,765 28,867 27,326 32,909 30,160 35,788 32,441

EBIT (adj) margin 23% 22% 26% 25% 23% 22% 25% 23% 27% 25%

Non-recurring items -5,150 83 83 83 -5,617 -4 333 333 333 333

EBIT 2,131 7,115 8,235 7,848 23,250 27,322 33,242 30,493 36,121 32,774

Pre-tax profit 2,400 2,201 7,557 7,327 22,512 21,648 30,948 28,585 33,895 30,946

Tax -1,721 -1,885 -2,191 -2,125 -7,321 -7,336 -8,888 -8,290 -9,743 -8,974

Tax rate 72% 86% 29% 29% 33% 34% 29% 29% 29% 29%

Minority interests -801 -797 -1,012 -956 -3,414 -3,299 -4,134 -3,792 -4,475 -4,050

Profit after tax -168 -481 4,364 4,247 11,777 11,014 17,926 16,503 19,677 17,922

Revenues

Telenor Norway 6,464 6,307 6,175 6,197 25,090 24,975 24,777 24,702 24,760 24,686

Telenor Denmark 1,288 1,267 1,247 1,222 5,053 4,983 5,034 4,923 5,030 4,917

Telenor Sweden 3,139 3,139 2,969 3,016 12,256 12,240 12,194 12,064 12,304 12,180

Telenor Hungary 1,149 1,088 1,076 1,017 4,372 4,192 4,363 4,107 4,438 4,178

Telenor Bulgaria 780 743 731 719 2,962 2,926 2,948 2,928 2,972 2,952

Telenor Montenegro&Serbia 955 946 954 952 3,676 3,648 3,712 3,698 3,715 3,702

dtac - Thailand 4,818 4,492 4,755 4,571 19,518 18,890 19,863 19,094 20,060 19,282

DiGi - Malaysia 3,049 3,049 3,239 3,230 12,507 12,491 12,960 13,007 12,899 12,946

Grameenphone - Bangladesh 3,432 3,432 3,653 3,610 14,055 13,872 15,583 14,795 16,190 15,252

Telenor Pakistan 2,113 2,608 2,452 2,429 9,376 9,842 10,780 11,148 11,568 11,927

Telenor Myanmar 1,734 2,059 1,930 1,930 7,322 7,631 8,238 8,322 8,444 8,528

Broadcast 1,547 1,490 1,547 1,498 6,134 5,979 6,239 6,042 6,251 6,053

Other units 2,268 2,047 2,134 2,090 8,810 8,491 8,691 8,393 8,690 8,395

Elimination -1,269 -1,156 -1,273 -1,149 -5,102 -4,604 -5,246 -4,713 -5,321 -4,776

Total Group 31,470 31,512 31,589 31,331 126,027 125,556 130,135 128,511 132,000 130,222

EBITDA

Telenor Norway 2,922 2,566 2,861 2,789 10,466 9,951 10,718 10,073 11,085 10,299

Telenor Denmark 224 141 206 128 811 623 848 580 894 590

Telenor Sweden 999 1,027 1,027 1,039 3,811 3,799 3,939 3,856 4,134 4,011

Telenor Hungary 382 332 379 355 1,378 1,279 1,432 1,284 1,515 1,333

Telenor Bulgaria 290 289 295 289 1,107 1,095 1,146 1,118 1,214 1,150

Telenor Montenegro&Serbia 361 338 378 370 1,321 1,276 1,376 1,320 1,426 1,347

dtac - Thailand 1,940 1,419 1,888 1,717 7,220 6,368 7,617 6,557 7,948 6,755

DiGi - Malaysia 1,408 1,408 1,587 1,582 5,819 5,811 6,174 6,168 6,329 6,262

Grameenphone - Bangladesh 2,100 1,991 2,248 2,088 8,386 7,911 9,688 8,378 10,419 8,767

Telenor Pakistan 1,013 1,135 1,115 1,099 4,175 4,274 4,952 4,967 5,472 5,435

Myanmar 804 965 877 877 3,222 3,377 3,722 3,762 3,910 3,932

Broadcast 876 476 535 518 2,289 1,858 2,363 1,916 2,368 1,919

Other units -331 -300 -277 -279 -1,107 -1,080 -1,127 -1,121 -1,127 -1,121

Total Group 13,000 11,786 13,119 12,572 48,905 46,543 52,849 48,858 55,586 50,679

Equity earnings -559 - - - 558 1,117 - - - -

2017E 2018E2Q17 2019E3Q17E

4

Valuation: Sum of the parts (NOKm)

Value NOK/sh Comment

Operations

Telenor Norway 94,910 63.21

Telenor Denmark 7,356 4.90 Nordic peer median EV/EBITDA of 9.1 x 2017E EBITDA

Telenor Sweden 34,557 23.02

Telenor Hungary 6,628 4.41

Telenor Bulgaria 5,324 3.55 CEE peer median EV/EBITDA of 4.8 x 2017E EBITDA

Telenor Montenegro&Serbia 6,354 4.23

dtac - Thailand 16,660 11.10 EV stake of 42.6% (market capitalization + net debt)

DiGi - Malaysia 35,945 23.94 EV stake of 49.0% (market capitalization + net debt)

Grameenphone - Bangladesh 29,898 19.91 EV stake of 55.8% (market capitalization + net debt)

Telenor Pakistan 37,579 25.03 EV/EBITDA of 9.0 x 2017E EBITDA

Telenor Myanmar 28,999 19.31 EV/EBITDA of 9.0 x 2017E EBITDA

Other

Broadcast 21,746 14.48 EV/EBITDA of 9.5 x 2017E EBITDA

Other units -10,034 -6.68 Nordic peer median EV/EBITDA of 9.1 x 2017E EBITDA

Enterprise value 315,923 210.41

Net interest bearing debt 51,053 34.00 Book value adj. for subsidiaries

VimpelCom 13,659 9.10 Market capitalization of 19.7% stake

Equity value 278,529 185.51 Based on 1,501.5m shares

Shares (m) 1,501

USD/NOK 8.36

NOK/THB 4.12

NOK/MYR 0.51

NOK/BDT 9.65

SOTP 186

DDM 159

Average 172

Target 172

Upside 11.4%

Valuation: Discounted dividend model (NOK)

2016 2017E 2018E 2019E 2020E

Net profit (NOKm) 2,831 11,868 17,979 19,772 21,663

DPS 3.30 8.25 8.50 8.70 8.80

Dividend yield 2.1% 5.3% 5.5% 5.6% 5.7%

Cost of equity 9.0%

L.t. dividend growth rate 2.5%

Discounted dividends 3.23 7.41 7.00 6.57 6.10

Sum of DD 2016-2020e 33.1

Terminal value 126.2

Value per share 159.3

Cost of equity calculation

Risk free rate 3.0%

Beta 1.0

Market risk premium 6.0%

Cost of equity 9.0%

5

Peer comparison

USDm Source Market EV*

Cap. 2017E 2018E 2019E 2017E 2018E 2019E 2017E 2018E 2019E

Telenor Norne 26,048 33,026 14.5 13.4 12.2 6.0 5.5 5.3 5.3% 5.5% 5.6%

Telenor Consensus** 15.9 14.7 14.0 6.2 6.1 5.9 5.2% 5.4% 5.6%

Nordic Peers

Telia Co. AB Consensus** 20,550 28,100 13.6 12.9 12.4 9.8 9.6 9.5 5.2% 5.0% 5.3%

Tele2 AB Consensus** 5,709 6,823 27.7 21.0 17.2 9.4 8.5 7.8 4.2% 4.3% 4.6%

Elisa Oyj Consensus** 6,724 7,660 18.7 18.2 17.4 11.6 11.1 10.8 4.6% 4.8% 5.0%

TDC A/S Consensus** 4,734 7,671 14.4 13.4 12.6 6.3 6.3 6.3 2.7% 3.0% 3.4%

Median 16.6 15.8 14.9 9.6 9.1 8.6 4.4% 4.5% 4.8%

Premium/Discount (-) to peers -13% -15% -18% -38% -39% -39% 0.9%p 1.0%p 0.9%p

European peers `

Vodafone Group Plc Consensus** 77,140 103,082 39.7 25.1 20.2 6.7 6.5 6.3 5.7% 5.7% 5.7%

Telefonica SA Consensus** 53,996 119,130 12.7 11.4 10.3 6.6 6.5 6.3 4.4% 4.6% 4.8%

Orange SA Consensus** 43,848 76,167 13.8 12.9 12.1 5.6 5.5 5.3 4.5% 4.8% 5.1%

Deutsche Telekom AG Consensus** 85,912 144,187 17.7 15.2 13.7 6.0 5.7 5.5 4.2% 4.5% 4.7%

Telecom Italia S.p.A. Consensus** 18,675 48,893 11.3 10.4 9.8 5.3 5.2 5.1 0.2% 0.2% 1.1%

Swisscom AG Consensus** 25,172 32,366 16.5 16.5 16.5 7.7 7.8 7.7 4.6% 4.6% 4.6%

BT Group plc Consensus** 39,220 50,639 10.9 10.6 10.1 5.4 5.4 5.3 5.3% 5.6% 5.7%

Proximus SA Consensus** 12,099 13,396 17.9 17.1 17.2 7.0 6.8 6.7 4.9% 4.9% 4.8%

Hellenic Telecommunications Or... Consensus** 6,126 6,701 21.2 18.3 15.8 4.7 4.7 4.6 1.9% 2.5% 3.4%

Telekom Austria AG Consensus** 5,364 7,655 14.5 13.7 13.0 5.2 5.1 5.0 2.7% 2.8% 3.1%

Orange Belgium SA Consensus** 1,414 1,696 19.6 19.1 18.2 5.2 5.3 5.4 3.4% 3.8% 4.1%

Median 16.5 15.2 13.7 5.6 5.5 5.4 4.4% 4.6% 4.7%

Premium/Discount (-) to peers -12% -12% -11% 6% 1% -2% 0.9%p 0.9%p 1.0%p

Indian peers

Reliance Communications Limite... Consensus** 941 5,577 na na na 8.8 8.4 9.7 0.6% 0.0% 0.0%

Bharti Airtel Limited Consensus** 25,363 43,424 41.4 36.7 25.6 8.6 7.6 6.7 0.5% 0.6% 0.5%

Idea Cellular Limited Consensus** 4,980 6,937 na na na 5.2 4.5 4.1 0.1% 0.4% 0.0%

Tata Communications Limited Consensus** 2,948 4,038 67.0 24.5 na 9.4 7.9 7.0 0.8% 0.8% na

Median 54.2 30.6 25.6 8.7 7.7 6.9 0.5% 0.5% 0.0%

Premium/Discount (-) to peers -73% -56% -52% -31% -28% -23% 4.8%p 5.0%p 5.6%p

* Calculated applying the last reported Balance Sheet and last Market Capitalization ** Thomson Reuters Eikon

P/E EV/EBITDA* Dividend yield

85

90

95

100

105

110

115

120

Apr 17 May 17 Jun 17

Telenor vs. peers, 3 months (rebased)

Telenor Orange Deutsche Telekom

Vodafone Telefonica Elisa

Tele2 Telia STOXX 600 Telecom

90

95

100

105

110

115

120

125

130

Jan 17 Feb 17 Mar 17 Apr 17 May 17 Jun 17 Jul 17

Telenor vs. peers, 6 months (rebased)

Telenor Orange Deutsche Telekom

Vodafone Telefonica Elisa

Tele2 Telia STOXX 600 Telecom

6

Telenor vs. Peers 12m Fwd. P/E

8

10

12

14

16

18

20

22

2012 2013 2014 2015 2016 2017Telenor Average of Nordic peersStoxx 600 Telecom Average of International peers

Telenor vs. Peers 12m Fwd. EPS

70

75

80

85

90

95

100

105

110

115

2013 2014 2015 2016 2017Telenor Average of Nordic peersStoxx 600 Telecom Average of International peers

Telenor vs. Peers Dividend yield (%)

2

3

4

5

6

7

8

9

10

2012 2013 2014 2015 2016 2017Telenor Average of Nordic peers Average of International peers

Telenor share price vs. 12m Fwd. EPS

8

8.5

9

9.5

10

10.5

11

11.5

12

95

105

115

125

135

145

155

165

175

185

195

2012 2013 2014 2015 2016 2017

Telenor share price (lhs) 12m fwd. EPS (rhs)

Stoxx 600 Telecom Index Price vs. 12m Fwd. EPS

15

17

19

21

23

25

27

200

220

240

260

280

300

320

340

360

380

400

2012 2013 2014 2015 2016 2017

Stoxx 600 Telecom Price Index (lhs) Stoxx 600 telecom 12m fwd. EPS (rhs)

7

Profit & Loss (NOKm) 2012 2013 2014 2015 2016 2017E 2018E 2019E

Operating revenues 101,718 104,027 111,443 128,175 131,427 126,532 130,435 132,300

Operating expenses -68,870 -68,135 -72,947 -83,977 -84,945 -77,224 -77,285 -76,413

EBITDA 32,848 35,892 38,496 44,197 46,482 49,308 53,149 55,886

Depreciation & Amortisation -14,402 -13,731 -15,529 -18,384 -20,051 -20,821 -20,240 -20,098

EBIT (adj) 18,446 22,161 22,967 25,814 26,431 28,337 32,609 35,488

Non-recurring items -8,691 -1,193 1,899 -2,802 -12,678 -5,237 333 333

EBIT 9,755 20,968 24,866 23,012 13,753 23,100 32,942 35,821

Net interest & other financial effects 1,016 -1,914 -1,711 -2,922 -3,543 -1,296 -2,294 -2,226

Pre-tax profit 10,770 17,824 19,357 13,013 11,727 22,132 30,948 33,895

Minority interests -219 -3,375 -3,682 -3,289 -2,973 -3,414 -4,134 -4,475

Taxes -1,743 -5,701 -6,598 -6,317 -5,923 -7,321 -8,888 -9,743

Profit after tax 8,809 8,748 9,077 3,407 2,831 11,397 17,926 19,677

EPS rep. (NOK) 5.65 5.79 6.05 2.27 1.89 7.65 11.97 13.17

EPS adj. (NOK) 9.91 1.86 3.93 -3.83 10.00 10.65 11.52 12.68

Margins

Operating margin 18% 21% 21% 20% 20% 22% 25% 27%

ROE 26% 5% 13% -15% 49% 61% 61% 55%

ROCE 15% 17% 17% 18% 20% 23% 27% 28%

Tax rate 16% 32% 34% 49% 51% 33% 29% 29%

Growth rates (YoY)

Operating revenues 3% 2% 7% 15% 3% -4% 3% 1%

EBIT (adj) 21% 20% 4% 12% 2% 7% 15% 9%

EPS (adj) 46% -81% 111% -198% nm 6% 8% 10%

Cash flow (NOKm) 2012 2013 2014 2015 2016 2017E 2018E 2019E

Operating profit 9,755 22,273 19,310 13,191 11,729 23,681 32,942 35,821

Depreciation and amortisation 14,402 13,882 15,564 20,386 28,033 20,831 20,240 20,098

Net financial items - 5,006 1,237 7,089 2,501 3,113 -2,294 -2,226

Other non-cash adjustments 8,279 358 121 3,807 872 3,418 -4,134 -4,475

Paid taxes -6,040 -4,831 -4,509 -5,141 -5,760 -6,141 -8,888 -9,743

Change in working capital -103 301 2,129 -2,224 2,404 -7,836 412 183

Operating cash flow (OCF) 26,293 36,990 33,852 37,107 39,778 37,065 38,278 39,659

Capital expenditures -25,833 -15,612 -20,693 -21,168 -23,727 -22,688 -20,816 -19,657

Other investments & asset transactions 2,914 -5,003 -304 886 2,623 5,029 - -

Free Cash Flow (FCF) 3,374 16,375 12,854 16,826 18,673 19,406 17,462 20,002

Net loan proceeds - 2,198 1,160 -540 9,019 -9,985 - -

Dividend paid - -9,239 -10,567 -10,724 -14,385 -11,961 -12,387 -12,762

Share issues and buybacks - -3,992 -1,022 - -5,234 -3,720 - -

Other -7,469 -2,169 -2,053 -3,955 1,055 2,074 53 95

Change in cash -4,095 3,174 372 1,607 9,128 -4,186 5,128 7,334

8

Balance sheet (NOKm) 2012 2013 2014 2015 2016 2017E 2018E 2019E

Goodwill 17,682 21,442 22,493 23,968 24,519 27,406 27,406 27,406

Deferred tax asset 4,090 3,585 3,432 3,366 2,012 1,522 1,522 1,522

Licences, property, plant & equipment 72,414 81,818 99,544 109,706 105,073 107,847 108,423 107,982

Other intangible assets 43,742 39,296 30,251 25,555 21,573 17,466 17,466 17,466

Non-current assets 137,928 146,141 155,720 162,595 153,177 154,241 154,817 154,376

Inventory 1,198 1,587 2,052 2,271 1,802 1,775 1,821 1,841

Receivables 18,209 19,701 21,226 23,877 24,876 25,458 26,106 26,393

Other current assets 1,729 1,563 2,408 2,209 3,228 3,380 3,380 3,380

Cash and cash equivalents 8,805 11,978 12,350 13,957 23,085 18,899 24,028 31,362

Current assets 29,941 34,830 38,035 42,314 52,991 49,512 55,333 62,975

Total assets 167,868 180,971 193,755 204,909 206,168 203,753 210,150 217,351

Shareholders equity 73,355 73,365 63,755 58,467 50,879 53,196 58,488 65,198

Non-controlling interests 3,057 3,672 4,750 4,660 4,517 4,732 4,732 4,732

Total equity 76,412 77,037 68,505 63,127 55,396 57,928 63,220 69,930

Deferred tax liability 1,640 2,127 2,569 3,023 2,972 2,821 2,821 2,821

Long-term interest bearing debt 39,826 51,001 61,113 63,802 60,391 51,380 51,380 51,380

Other long-term liabilities 6,058 6,444 8,964 9,979 9,942 7,751 7,751 7,751

Non-current liabilities 47,523 59,572 72,646 76,804 73,305 61,951 61,951 61,951

Current interest bearing debt 10,275 7,291 7,474 12,626 25,970 26,626 26,626 26,626

Trade payables 28,034 31,706 38,315 44,030 42,890 43,438 44,543 45,033

Other current liabilities 5,624 5,365 6,816 8,322 8,607 13,811 13,811 13,811

Current liabilities 43,933 44,362 52,605 64,978 77,468 83,874 84,980 85,470

Total liabilities 91,456 103,934 125,250 141,782 150,773 145,825 146,930 147,421

Total liabilities and equity 167,868 180,971 193,755 204,909 206,168 203,753 210,150 217,351

Working capital -8,626 -10,417 -15,037 -17,882 -16,212 -16,204 -16,617 -16,800

Net IB debt 41,296 46,314 56,237 62,471 63,276 59,106 53,978 46,644

Capital employed 123,936 136,609 141,150 139,931 128,701 119,879 125,171 131,881

Net IB debt / equity 56% 63% 88% 107% 124% 111% 92% 72%

Equity / total assets 44% 41% 33% 29% 25% 26% 28% 30%

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Share data 2012 2013 2014 2015 2016 2017E 2018E 2019E

Shares outstanding, year end (mill.) 1,559.9 1,509.6 1,501.5 1,501.5 1,501.5 1,501.5 1,501.5 1,501.5

Share price, year end (NOK) 115.30 144.60 151.50 148.30 129.00 154.40 154.40 154.40

Market cap (NOKm) 179,862 225,568 236,332 222,666 193,688 231,825 231,825 231,825

Enterprise value (NOKm) 224,215 275,554 297,319 289,797 261,481 295,663 290,535 283,201

EPS rep. (NOK) 5.65 5.79 6.05 2.27 1.89 7.65 11.97 13.17

EPS adj. (NOK) 9.91 1.86 3.93 -3.83 10.00 10.65 11.52 12.68

DPS (NOK) 6.00 7.00 7.30 7.50 7.80 8.25 8.50 8.70

Dividend payout ratio on EPS (adj) 61% 376% 186% -196% 78% 77% 74% 69%

Valuation 2012 2013 2014 2015 2016 2017E 2018E 2019E

EV/Sales 2.2 2.6 2.7 2.3 2.0 2.3 2.2 2.1

EV/EBITDA 6.8 7.7 7.7 6.6 5.6 6.0 5.5 5.1

EV/EBIT (adj) 12.2 12.4 12.9 11.2 9.9 10.4 8.8 7.9

P/E (adj) 11.6 80.2 40.1 neg 12.9 14.5 13.4 12.2

P/B (excl. goodwill) 3.2 4.3 5.7 6.5 7.3 9.0 7.5 6.1

Growth (YoY) 2012 2013 2014 2015 2016 2017E 2018E 2019E

Revenues 3% 2% 7% 15% 3% -4% 3% 1%

EBITDA 8% 9% 7% 15% 5% 6% 8% 5%

EBIT (adj) 21% 20% 4% 12% 2% 7% 15% 9%

Pre-tax profit (rep) -14% 65% 9% -33% -10% 89% 40% 10%

Net profit 23% -1% 4% -62% -17% 303% 57% 10%

EPS (rep) 31% 3% 4% -62% -17% 306% 57% 10%

EPS (adj) 46% -81% 111% -198% nm 6% 8% 10%

Margins 2012 2013 2014 2015 2016 2017E 2018E 2019E

EBITDA 32.3 % 34.5 % 34.5 % 34.5 % 35.4 % 39.0 % 40.7 % 42.2 %

EBIT (adj) 18.1 % 21.3 % 20.6 % 20.1 % 20.1 % 22.4 % 25.0 % 26.8 %

Pre-tax profit 10.6 % 17.1 % 17.4 % 10.2 % 8.9 % 17.5 % 23.7 % 25.6 %

Net profit 8.7 % 8.4 % 8.1 % 2.7 % 2.2 % 9.0 % 13.7 % 14.9 %

Profitability 2012 2013 2014 2015 2016 2017E 2018E 2019E

ROE 26.1 % 5.2 % 12.7 % -15.2 % 49.4 % 61.3 % 60.8 % 55.3 %

ROCE 15.1 % 17.0 % 16.5 % 18.4 % 19.7 % 22.9 % 26.9 % 27.8 %

Dividend yield 5.2 % 4.7 % 4.6 % 5.1 % 6.0 % 5.3 % 5.5 % 5.6 %

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Recommendation, valuation, risk and sources

Recommendation and target price

Recommendation history for Telenor during the previous 12 months:

Date Recommendation Target price (NOK)

18/07/2017 Buy 172.00

13/07/2017 Hold 147.00

08/05/2017 Hold 150.00

02/05/2017 Buy 155.00

21/02/2017 Buy 160.00

30/01/2017 Buy 155.00

28/10/2016 Buy 155.00

21/10/2016 Buy 155.00

21/07/2016 Buy 170.00

13/07/2016 Buy 160.00

Valuation

To arrive at our share price target we have used the rounded average of Dividend

Discount Model (DDM) and Sum-of-the-parts (SOTP) valuation approaches

Risks The main risks to our target price on Telenor are the following:

Increased competition in mobile market – there is a possibility that the

current strong competitive pressure will continue to grow decreasing

revenues and margins and thus – weighing down on valuation.

Exchange rates – Telenor operates in several different countries

through subsidiaries. Thus as revenue is generated in different

currencies, volatility in exchange rates may affect both income and

costs.

Taxation risk – each country where Telenor operates set their corporate

and other tax rate. An unanticipated significant change in

telecommunication related taxes would hurt Telenor’s financial results.

Risk of subsidiary underperformance – Telenor owns more than 10

subsidiaries of different size. An underperformance of a significant

subsidiary may have a negative effect on the whole group.

Regulatory/political risk – due to operations in different countries, our

valuation of Telenor bears risks of legislature and political changes

concerning telecommunications markets of the respective countries,

especially emerging Asian markets.

Sources The sources used in the preparation of this report were: Telenor ASA, Oslo Stock

Exchange, Thomson Reuters and SME Direkt.

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DISCLOSURES AND DISCLAIMER

STANDARDS AND SUPERVISORY AUTHORITY This report has been prepared by Norne Securities AS, which is supervised by The Financial Supervisory Authority of Norway (Finanstilsynet). Industry standards issued by The Norwegian Securities Dealers Association (Verdipapirforetakenes Forbund) (www.vpff.no) have been used in preparing this report.

DISCLAIMER This report is provided for information purposes only. It should not be used or considered as an offer to sell or a solicitation of an offer to buy any securities. This report is prepared for general circulation and general information only. It does not take into account the specific investment objectives, investment knowledge and experience and financial situation of any recipient. Investors seeking to buy or sell any securities discussed or recommended in this report, should seek independent financial advice relating thereto and make his/her own appraisal of the tax or other financial merits of the investment. Any opinions expressed are subject to change without prior notice. This report is based on information from various sources believed to be reliable. Although all reasonable care has been taken to ensure that the information herein is not misleading, Norne Securities AS makes no guarantee, representation or warranty, expressed or implied as to its accuracy, adequacy or completeness. Neither Norne Securities AS, its employees, nor any other person connected with it, accepts any liability whatsoever for any direct, indirect or incidental, special or consequential loss of any kind arising out of the use or reliance on the information in this report.

This report is intended for use only by those persons to whom it is made available by Norne Securities AS. This report may not be distributed, quoted from or reproduced, in full or in part, in any manner without written approval by Norne Securities AS.

RECOMMENDATION STRUCTURE Norne Securities’ general recommendations – Buy, Hold and Sell – are based on the expected absolute return on the financial instrument within the next 12 months, which equals to an upside to the target price, in combination with a risk profile. The target price represents the price level which the analyst expects the financial instrument to trade at within the coming 12 months. The table below shows the ranges of returns under different risk levels, based on which the recommendation is being determined:

Total return next 12 months (upside to target price)

Risk Buy Hold Sell

Low > 10% 2% - 10% < 2%

Medium > 15% 3% - 15% < 3%

High > 25% 5% - 25% < 5%

In addition to the general recommendations, “Trading Buy” and “Trading Sell” recommendations can be used in the case where the analyst predicts a short term share price performance different from the twelve-month general recommendation. “Trading Buy” is given when the share price is expected to rise and “Trading Sell” is given when the share price is expected to fall in the short term (several days to several weeks horizon).

Our risk assessments range from “high risk” to “medium risk” and “low risk” and are based on a subjective assessment of the following factors: 1) volatility in the share price, 2) liquidity in the share, 3) strength of the balance sheet, 4) absolute earnings level and trend and 5) estimate risk.

TARGET PRICE AND UPDATES Target prices may be based on one or several valuation methods, for instance, the discounted cash flow (DCF) analysis or applying “fair” pricing multiple(s) based on historical valuation or peer pricing level. Target price may not necessarily equal to the “fair value” of the financial instrument – certain discount or premium is possible due to various reasons, depending on the analyst’s view of what the price may be within the 12 months period. Norne Securities AS plans to update the recommendation based on the following events: the target price is achieved; new accounting figures are released; any significant news on the company or its industry is announced.

DISCLOSURE OF INTERESTS Norne Securities AS may at any time perform investment banking or other services or solicit investment banking or other mandates from the company or companies covered in this report. Norne Securities AS may hold positions in securities covered in this report due to its own-account trading that is part of its investment services operations, such as market making. Norne Securities AS has appointed and may at any time appoint tied agents to provide investment services on behalf of Norne Securities AS. Tied agents are listed in the public registry of the Norwegian Financial Supervisory Authority, and an updated overview of appointed tied agents of Norne Securities AS can be found on https://www.norne.no/compliance/.

PREVENTING CONFLICTS OF INTEREST Norne Securities AS has arrangements in place with the aim of preventing conflicts of interest. As part of these arrangements, Norne Securities AS has established information barriers between different parts of the company to restrict and control the exchange of sensitive information. No direct link exists between remuneration of the Norne Securities AS analysts and investment banking services provided by Norne Securities AS. Under our internal regulations, which have been prepared in accordance with applicable legislation and relevant industry standards, our analysts are not permitted to purchase new securities in the companies they cover.

12

POTENTIAL CONFLICTS OF INTEREST This report has not been presented to the issuer before dissemination for a check of factual information.

Share holdings of Norne employees in Telenor:

Responsible analyst(s) 0

All Norne analysts 0

All Norne employees 300

Norne Securities AS 0

The overview of share holdings is updated continuously. A list of total share holdings of the Norne Securities’ employees and the date of last overview can be found on https://www.norne.no/compliance/. Shareholdings that Norne Securities AS owns as a result of own-account trading that is part of its investment services operations (such as market making) are not included in the table above.

Distribution of Norne Securities’ recommendations during three months up till June 30, 2017:

Buy Hold Sell Total recommendations 60 27 15

% of total 59% 26% 15%

Corporate clients* 20 10 1

% of corporate clients* 65% 32% 3%

* Includes publicly disclosed not immaterial investment banking services or issues of financial instruments where Norne Securities AS has been lead manager or co-lead manager, and market making clients during the 12 months prior to the overview date.

Note: In the table above, Trading Buy recommendation is treated as Buy, and Trading Sell is treated as Sell.

CAUTIONARY NOTE REGARDING RISK An investment in the company involves risk, and several factors could cause the actual results, performance or achievements of the company to be materially different from future results, performance or achievements that may be expressed or implied by statements and information in this presentation. Including, among others, risk or uncertainties associated with the company’s business segments, development, growth management, financing, market acceptance and relations with customer, and more generally, general economic and business conditions, changes in domestic and foreign laws and regulations, taxes, changes in competition and pricing environment, fluctuations in currency exchange rates and interest rates and other factors. Should one or more of these risks or uncertainties materialise, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this document. Past performance is not a guide to future performance. Investing in securities may result in a loss of all or part of the investment.

DISTRIBUTION RESTRICTIONS This report is not intended for and must not be distributed to private customers in the UK or US. Norne Securities AS and its employees are not subject to the Rules of the Financial Industry Regulatory Authority (FINRA) governing research analyst conflicts. The research reports are intended for distribution in the United States solely to “major U.S. institutional investors” as defined in Rule 15a-6 under the United States Securities Exchange Act of 1934, as amended and may not be furnished to any other person in the United States. Each major U.S. institutional investor that receives a copy of a Norne Securities AS research report by its acceptance thereof represents and agrees that it shall not distribute or provide copies to any other person. Reports are prepared by Norne Securities AS and distributed to major U.S. institutional investors under Rule 15a-6(a)(2).

COPYRIGHT This report may not be duplicated, photocopied or otherwise reproduced, in full or in part, under applicable copyright laws.

THIS REPORT IS SUBJECT TO NORWEGIAN LAW, AND ANY DISPUTE ARISING IN RESPECT OF THIS REPORT IS SUBJECT TO THE EXCLUSIVE JURISDICTION OF NORWEGIAN COURTS.