Nokia achieved a strong Q2 performance despite multiple headwinds. The company posted a strong level of profitability which was above consensus expectation, along with a solid cash performance. This gave management more confidence on the FY20, leading to an increase in the guidance.
Companies: Nokia Oyj
Nokia’s first-quarter results were in line with the consensus and our expectations. The company saw the first COVID-19 impacts in Q1, but Q2 will be the most impacted. As a result, the company slightly lowered its FY20 guidance. We, however, remain confident of its prospects beyond 2020.
Nokia’s results’ beat provides some relief and meets 2019 guidance, while the 2020 guidance is left unchanged. We expect soft growth in 2020, offset by improving profitability. The company made significant progress towards a new, and competitive, SoC, which should give the company a better competitive solution going forward.
Nokia has published a solid Q3 quarter, which came in line with expectations, i.e. softer than Q2. However, due to the materialisation of risks already identified by the company, the company has trimmed its guidance meaningfully.
Nokia has reported a strong Q2, sustained by 5G deployment in North America and South Korea. The company has also made significant progresses on the profitability side, which in our view helps the company in achieving its FY19 objectives. The company has also upgraded its views regarding the end-market, which is now expected to grow in 2019 and accelerate in 2020, driven by 5G deployments in the US, South Korea, Japan and other leading 5G markets.
Nokia has experienced a weaker Q1 than previously anticipated, but management remained optimistic in its ability to fulfill both its 2019 and 2020 objectives. FY19 will be, as was the case in 2018, a back-end loaded year. Also, we believe that Nokia has the right portfolio to address the incoming 5G needs.
Nokia reported Q3 figures in line with expectations and confirmed its FY18 guidance which is mainly reassuring after a poor H1 18. The margins are picking up sequentially but posted a decline yoy due to price erosion exceeding cost savings, waiting for the 5G deployment from Q4. Mid-term prospects remain sound and the EPS growth cycle should develop according to the 5G ramp-up.
Nokia reported Q2 18 results below expectations including an operating profit of €334m (-42% yoy), and missed the €373m consensus but reiterated FY18 guidance. In its Networks business, Nokia expects improving market conditions in the second half of 2018, with particular acceleration in the fourth quarter in North America because of 5G deployment. Nokia also confirmed its guidance and target to deliver €1.2bn of recurring annual cost savings in full-year 2018.
Nokia reported weak figures in Q1 18 for both the top line and the operating profit, reflecting a traction in the Networks business. However, the strong order intake and backlog point to a building momentum and, especially, a ramp-up in 5G deals in H2 18. The FY18 guidance is reiterated but is now more at risk as it will rely mainly on the final quarter.
Nokia reported Q4 revenues of €6,667m, down 1% on reported figures but up 4% yoy at comparable currency:
- The Ultra Broadband Networks came in at €2,471m (+17.7% sequentially, -4.4% yoy). Both sub-units went down: Mobile Networks came in at €1,944m (-4.1% yoy), and Fixed Networks at €526m (-5.7%).
- Global Services business came in at €1,642m (-6.7%).
- IP Networks and Applications came in at €1,714m (-1.6% yoy), with only IP Routing being down at €737m (-9.6%), while Optical Networks (€506m, +10%) and Applications & Analytics (€471m, +1.1%) witnessed a return to growth.
- As a consequence, the overall Networks business was down by 4.3% yoy (€5,827m).
- Nokia Technologies displayed a strong increase yoy (€554m, +79.3%) thanks to €210m of catch-up non-recurring revenues.
The adjusted gross margin came in at 41.4%, down 50bp yoy, for an IFRS gross margin of 39%. The adjusted EBIT margin came in at 15.1%, up 110bp yoy, for an IFRS EBIT margin of 6.3%, leading to an IFRS loss of €386m.
For 2018, the company expects the Networks business to decrease by 2-4%, in line with the addressable market, for an EBIT margin of 6-9%. The overall EBIT margin is expected to be 9-11%, for a non-IFRS EPS of €0.23-0.27. The dividend is expected to be 40-70% of the non-IFRS EPS, while capex should reach €700m.
The company also communicated about its 2020 objectives: the EBIT margin is expected to be about 12-16% (of which Networks 9-12% and Nokia Technologies 85%), and non-IFRS EPS €0.37-0.42. Concerning revenues, the Networks business is expected to grow faster than the RAN market after 2018, and Nokia Technologies is expected to grow by 10% per year over 2017-20. Capex is expected to reach the €600m zone.
Nokia reported Q3 revenues of €5,537m, down 4% yoy at comparable currency and 7.1% on reported figures:
- The Ultra Broadband Networks came in at €2,099m (-3% sequentially, -16.7% yoy). Both sub-units went down: Mobile Networks came in at €1,598m (-16.9% yoy), and Fixed Networks at €501m (-15.8%).
- Global Services business (consisting of the former services share of the Ultra Broadband Networks business) came in at €1,359m (-2.2%).
- IP Networks and Applications came in at €1,365m (-3.9% yoy), with all sub-segments being down: IP Routing by 2% to €682m, Optical Networks by 6.8% to €329m, and Applications & Analytics by 5.1% to €354m.
- As a consequence, the overall Networks business was down by 9.5% yoy.
- Nokia Technologies displayed a strong increase yoy (€483m, +36.8%) thanks to €180m of non-recurring revenues.
The adjusted gross margin came in at 42.7%, up 300bp yoy, for an IFRS gross margin of 39.7%. The adjusted EBIT margin came in at 12.1%, up 28bp yoy, for an IFRS EBIT margin of -4.2%, leading to an IFRS loss of €183m.
For 2017, the company downgraded the outlook for its addressable market, which is expected to decrease by 4-5% (vs. 3-5%), but left unchanged its operating margin target in Networks of 8-10%. The company also expects its capex to reach €600m (vs. €500m) in 2017, as well as rising restructuring charges (€1.9bn vs. €1.7bn).
Concerning 2018, the primary market is expected to decline by 2-5%, although the guidance for the Networks business won’t be communicated before the Q4 results.
Nokia reported Q1 revenues of €5,629m, down 1% yoy at comparable currency and 0.7% on reported figures:
- Under the new reporting structure, the Ultra Broadband Networks segment went down by 8.1% yoy (€2,165m), with both Mobile Networks (€1,619m, -6.3%) and Fixed Networks (€546m, -13.2%) substantially down.
- The newly created Global Services business (consisting of the services share of the Ultra Broadband Networks business) came in flat at €1,445m (+0.3%).
- IP Networks and Applications came in at €1,358m, also down yoy (-4.4%), with all sub-segments being down by double-digit (IP Routing: -8.3% at €654m, Optical Networks: -9.6% at €339m) but once again Applications & Analytics (€365m, +9.6%).
- As a consequence, the overall Networks business was down by 4.8% yoy.
- Nokia Technologies displayed a strong increase yoy (€369m, +90.2%) thanks to a licensing agreement with Apple.
The adjusted gross margin came in at 41.7%, up 290bp yoy, for an IFRS gross margin of 39.8%. The adjusted EBIT margin came in at 10.2%, up 430bp yoy, for an IFRS EBIT margin of -0.8%, leading to an IFRS loss of €433m.
For 2017, the company downgraded the outlook for its addressable market, which is expected to decrease by 3-5% (vs. low single-digit), but left unchanged its operating margin target of 8-10%.
Nokia reported Q1 revenues of €5,388m, down 6% yoy at comparable currency and down 3.8% on reported figures. The Ultra Broadband Networks segment went down by 3.5% yoy (€3,597m), with a flattish Mobile Networks (€3,096m, -0.6%) and a strongly decreasing Fixed Networks (€501m, -18.3%). IP Networks and Applications came in at €1,304m, also down yoy (-10.2%), with all sub-segments being down by double-digit but Applications & Analytics (€359m, flat yoy. As a consequence, the overall Networks business was down by 5.4% yoy. Nokia Technologies displayed a strong increase yoy (€247m, +24.7%).
The adjusted gross margin came in at 40.8%, up 140bp yoy, for an IFRS gross margin of 39.5%. The adjusted EBIT margin came in at 6.3%, up 10bp yoy, for an IFRS EBIT margin of -2.4%, leading to an IFRS loss of €473m.
For 2017, the company maintained a negative outlook for its addressable market, which is expected to decrease by 2.2%, as well as an operating margin of 8-10%; capex is still expected to be c. €500m, and the cost-savings target of €1.2bn in 2018 is maintained.
Nokia reported Q4 revenues of €6,715m, down 13% yoy at comparable as well as reported figures. The Ultra Broadband Networks segment went down by 14.7% yoy (€4,331m), with both sub-segments Mobile Networks (€3,787m, -13.6%) and Fixed Networks (€544m, -22.1%) being down; IP Networks and Applications came in at €1,737m, also down yoy (-12.1%), and leading the overall Networks business to be down by 14% yoy. Nokia Technologies displayed a massive decrease yoy (€309m, -25.2%) due to Q4 15 being boosted by the multi-year licensing agreement with Samsung.
The non-IFRS gross margin came in at 42%, down 40bp yoy, for an IFRS gross margin of 40%. The adjusted EBIT margin came in at 14%, down 160bp yoy, for an IFRS EBIT margin of 4.8%, leading to an IFRS profit of €676m.
For 2017, the company maintained a negative outlook for its addressable market, which is expected to decrease by 2.2%, as well as an operating margin of 8-10%; no guidance was provided for Nokia Technologies due to the current litigation with Apple. Capex is expected to be c. €500m.
Nokia reported Q3 revenues of €5,952m, down 6.9% yoy at comparable figures. The Ultra Broadband Networks segment went down by 12.7% yoy (€3,903m), due to a fall in Mobile Networks (€3,318m, -15%) partially offset by growth in the Fixed Networks business (€585m, +3.4% yoy); IP Networks and Applications came in at €1,420m, down yoy (-8.5%), while Nokia Technologies displayed a massive surge yoy (€353m, +108.9%) thanks to c. €100m of non-recurring sales related to the Samsung licensing agreement.
The non-IFRS gross margin came in at 39.7%, up 200bp yoy, for an IFRS gross margin of 37.6%. The adjusted EBIT margin came in at 9.3%, down 140bp yoy, for an IFRS EBIT margin of 0.9%, leading to an IFRS loss of €139m.
The company maintained its expectations of a decline in sales of its Networks business for 2016, although it specified that the cause was a decline in the overall addressable market. The net sales in this unit is expected to decline at the same pace as in Q3. The capex forecast has also been cut by €100m down to €550m.
The nomination of Mr Kristian Pullola as new CFO was also announced, effective from 1 January 2017, as Mr Timo Ihamuotila will join ABB.
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Bigblu Broadband has today announced the sale of its UK and European satellite broadband operations to Eutelsat for a maximum consideration of £39.3m, with £37.8m payable in cash upon completion. This represents 7.0x FY19 EBITDA of £5.6m for the sale assets, and values the assets ahead of other UK telecom and satellite peers on c6x EV/EBITDA. BBB intends to use the proceeds to reduce its net debt, and evaluate opportunities to enhance shareholder value that could include shareholder returns. In this report we lay out the investment case for BBB’s continuing operations (UK fixed wireless/Quickline, Australia, and Nordics), and introduce conservative forecasts for the continuing group that do not include tender wins for BBB’s Quickline division. This still leads us to expect FY21 organic revenue growth of +3% and EBITDA growth of +9% that compares to 12-month forward EBITDA growth for peers in Managed Services & Telecoms, and the finnCap Next 50, of +3% and +7% respectively. Combined with a net cash position and 2% EFCF yield in FY21, BBB looks undervalued on 7x 12-month forward EV/EBITDA (Managed Services & Telecoms peers 11x, fc Next 50 16x), and we reiterate our target price of 155p based on 12x FY21 EV/EBITDA.
Companies: Bigblu Broadband Plc
Both Q1 revenues and EBITDA were down by 7% yoy with a COVID-19 impact a little bit more significant than the average for telcos.
The group is currently investing heavily in its networks and one day this will pay off, although for the moment we are still waiting for a…revenue stabilisation and COVID-19 won’t help matters in 2020/21. We maintain, however, our Buy opinion: now the dividend has been cut, BT does not deserve such a low price.
Companies: BT Group Plc
An expected resilience to the COVID-19 negative impacts in Q1. The group can indeed congratulate itself on having strengthened in recent years its fixed activities: in Germany, which represents 40% of Vodafone’s activities in Europe, service revenues were flat yoy in Q1.
The monetisation of its infrastructure assets is continuing and, given the slight growth that the group could offer in the coming years, we maintain our Buy on the stock.
Companies: Vodafone Group Plc
Spirent’s results last week showed good traction from the group’s strategic growth areas (Lifecycle Service Assurance and Application Security), which combined with effective cost control, resulted in strong earnings growth and excellent cash generation. The group remains heavily H2 weighted, but we believe it is well placed to deliver a long awaited return to top-line growth going forwards. With gross margins remaining strong and management maintaining a tight grip on costs, we expect the growth to result in continued margin expansion across our forecast period. We make significant upgrades to all forecast years and increase our target price to 139p. Buy.
Companies: Spirent Communications Plc
Stripe Inc said on Thursday it is raising $250 million in its latest funding round, which values the payments start-up at $35 billion, a dramatic 56% surge from a previous valuation at the start of the year. The latest valuation puts Stripe in the same league as home rental giant Airbnb Inc, which is also planning go public in 2020. Stripe has received strong positive feedback from our private FinTech contacts. Meanwhile, the IPO pipeline for 2020 is already heating up.
Companies: CALL TRAK BGO BOKU ECK EQLS LOOP NET QTX SEE TECH TCM TRCS
Disney+ hits 22m mobile users, SoftBank backed firm downsizes IPO, German mobile carrier selects Huawei
Companies: ENET 7DIG MVR ZOO ZOO AMO BOOM MIRA MWE
Bigblu Broadband (BBB) has reported a strong set of FY19 results that demonstrate strong organic growth, and are in line to ahead of the previous consensus estimates. This establishes a strong foundation for BBB’s future growth, and we expect that BBB will see revenue, EBITDA, and EPS growth in FY20 and FY21 despite the uncertainty caused by Coronavirus. This reflects that BBB has a robust and resilient investment case, which we explain in depth in this report. We consequently believe that BBB is undervalued on 12m fwd multiples of 5x EV/EBITDA and 7x adj P/E, and initiate with a TP of 155p or 15x FY21 adj EPS.
Update to forecasts – Neutral
Companies: The Vitec Group Plc
The Board has finally decided to suspend its final dividend for 2019/20 and all dividends for 2020/21. This move is structural and not really linked to the Covid19 crisis in that it is to invest in FTTP and 5G, and to fund a major new 5-year modernisation programme.
These announcements are a first buy signal although the recovery will take time and the group must now stabilize its revenues which will not be easy given the Covid19 pandemic context.
Quite a good Q4 supported by improving commercial momentum in Europe. The annual EBITDA grew eventually by 2.6% yoy reflecting the cost programme’s success.
The €0.09 dividend is maintained.
Vodafone is more highly indebted after its deal with Liberty-Global, but its dividend (cut last year) seems now more in harmony with its balance sheet. Besides, the monetisation of its infrastructure is continuing. Given therefore the slight growth Vodafone should offer in the coming years, we maintain our Buy recommendation on the stock.
CAP-XX Ltd* (CPX.L, 3.1p/£10.1m) | Gfinity plc* (GFIN.L, 1.675p/£12.0m) | MTI Wireless Edge Ltd* (MWE.L, 38.5p/£33.8m) | Newmark Security plc* (NWT.L, 1.05p/£4.9m) | Mirada plc* (MIRA.L, 95.0p/£8.5m)
Companies: CPX GFIN MWE NWT MIRA
Gamma’s performance continues to speak for itself. The positive trading update for H1 20 reflects a similar tone to that of its recent AGM statement, containing an acknowledgement of the current operating environment while reporting a good performance for the six months. A high rate of recurring revenue, ‘minimal’ contract cancellations and no increase in bad debts remain key features. It was a busy first half with continued demand (albeit COVID-19 affected in Q2) for Cloud PBX and UCaaS (Unified Communications as a Service) products in the UK. Acquisitions in Spain and the UK were swiftly followed by the HFO deal in Germany in early July and the purchase of GnTel in the Netherlands last week. Management expects that EBITDA and EPS will be ahead of consensus for the year. We note the strong momentum in the business but, as we are at the upper end of the consensus range, we leave our estimates unchanged at present.
Companies: Gamma Communications Plc
Blackbird plc* (BIRD.L, 17.5p/£58.8m) | MTI Wireless Edge Ltd* (MWE.L, 31.5p/£27.7m) | Mirada plc* (MIRA.L, 90.0p/£8.0m) | Brave Bison plc* (BBSN.L, 1.375p/£8.4m)
Companies: BIRD MWE MIRA BBSN
In 2020, despite the COVID-19 impact, revenue should decrease by around 2.5% yoy organically. Beyond the pandemic crisis, Millicom remains an interesting ‘growth’ story (further boosted by acquisitions) in a sector which experiences none. Management’s medium-term goal (confirmed after the Q2 release) is indeed to deliver mid single-digit organic service revenue growth and mid-to-high single-digit organic EBITDA growth.
We remain at Buy on the stock.
Companies: Millicom International Cellular SA
Despite the disruption caused by COVID-19, Kcell delivered both revenue and profit growth in Q2. Impressive handset sales (up 62% y-o-y) offset the impact of a consumer spending slowdown and an exit from off-net bulk SMS. With Kazakhstan entering a new lockdown, the outlook remains uncertain. Yet Q2 clearly shows Kcell’s resilience and longer term the scope for group synergies in a consolidated market should drive healthy profit growth.
Companies: Kcell JSC