A solid Q1 for Elisa but we maintain, however, our opinion at Reduce: we still believe the group is now too expensive as it is going to see its EBITDA growth slowing in 2020/21. The group’s EV is trading at no less than 13.5x EBITDA, which is very expensive compared to other European telcos. The group has paid a dividend of €1.85 for 2019, corresponding to a 3.5% dividend yield which stands well below the average of its peers at c.5.5%.
Companies: Elisa Oyj
The Q4 release confirmed that, organically, Elisa is indeed a no-growth story in terms of revenue while its efficiency programmes and the good integration of acquisitions allowed a good increase in its EBITDA throughout 2019.
We still believe the group is now too expensive as it is going to see its EBITDA growth slowing in 2020. We maintain our opinion on the stock at reduce
Q2 revenues were still down by nearly 2% yoy, as in the previous quarter. Although the EBITDA was quite correct (+2.8% yoy) and that 5G should allow slightly better figures in H2, the group seems fully priced. It already offers a 4.3% dividend yield, which is the lowest in its sector in Europe.
Stock down by 3% at the opening.
Q4 revenues were down by 0.4% yoy, while EBITDA grew by 3%. Note that revenue growth is now flat as the acquisitions made at the end of 2016 and the beginning of 2017 (Starman and Santa Monica) have had an impact up to Q2 18. The Q3 and Q4 flat revenues reflect indeed that Elisa without external growth is a classic no-growth story in the European telecom sector.
Like in previous quarters, efficiency improvements have allowed a slight increase in the EBITDA margin. Elisa is indeed continuing its productivity improvement development by increasing automation and data analytics in different processes, such as customer interactions, network operations and delivery.
So it’s no surprise if for 2019 management anticipates revenue and EBITDA to be at the same level or slightly higher than in 2018.
The board will propose a dividend of €1.75 for 2018 to be paid in 2019. This is slightly above what we had in our model (€1.7) but it is in line with the global consensus.
Elisa released this morning its Q3 update.
Q3 revenues were flat yoy while EBITDA grew by 2.1%. Note that revenue growth is poorer than in the previous quarter (Q2 revenues were up by 2.8%) but the acquisitions made at end 2016 and the beginning of 2017 (Starman and Santa Monica) have had an impact of c.1.5% on the accounts in Q2. So if we exclude moreover some of the recent divestments made by the group, the Q3 organic growth at c.1% yoy is globally correct and in line with the previous quarters. It reflects indeed that Elisa without external growth is a classic no-growth story in the European telecom sector.
Like in previous quarters, efficiency improvements have allowed a slight increase in the EBITDA margin (37.2% vs 36.3% a year ago). Elisa is indeed continuing its productivity improvement development by increasing automation and data analytics in different processes, such as customer interactions, network operations and delivery.
Note that, for the whole year, revenue and EBITDA are estimated to be slightly higher than in 2017 and no longer expected to be at the same level.
Remember that Elisa paid a dividend of €1.65 for 2017 and should pay, in our view, €1.70 for 2018.
Q4 revenue increased by 9% on the previous year, while EBITDA grew by 11% (excluding non-recurring items related to restructuring costs).
Like in the previous quarters, recent acquisitions (Starman in Estonia and Santa Monica in the Finnish corporate segment), growth in mobile services and digital services in both customer segments have affected revenue positively. The Q4 numbers show better organic growth than in Q3 (nearly +2% vs only +1% in Q3): the decrease in usage and subscriptions of traditional fixed telecom services, and lower roaming and interconnection revenue in Finland, have affected revenue less negatively.
As for 2018, revenue and comparable EBITDA are estimated to be at the same level or slightly higher than in 2017 (note recent acquisitions are still expected to increase Q1 revenue by 7%). Capex is expected to be a maximum of 12% of revenue.
The board will propose at the Annual General Meeting a dividend of €1.65 per share (a 10% increase compared to the previous year), better than the €1.55 we had in our model.
Q3 revenue increased by 8% on the previous year, while EBITDA grew by 7%.
Like in Q2, recent acquisitions (in particular in Estonia), growth in mobile services and digital services in both customer segments have affected revenue positively. But the Q3 numbers still show low organic growth, like in previous quarters. However, the decrease in usage and subscriptions of traditional fixed telecom services, and lower roaming and interconnection revenue in Finland, have affected revenue negatively.
Q2 revenues and EBITDA have both increased by 13% yoy thanks to the consolidation of Starman and Santa Monica Networks (completed in April). Adjusted for these acquisitions, revenues and EBITDA were, however, up by c.3.5%, a quite correct performance in a mature and competitive Finnish market.
Q1 revenues have increased by 7% yoy while EBITDA grew by 5% thanks to the consolidation of Anvia (this is the last quarter of adjustment as the company was bought a year ago). Adjusted for this acquisition, revenues and EBITDA were, however, up by c.2.5%, a quite correct performance in a mature and competitive Finnish market.
Note the Estonian Competition Authority approved on 20/03/2017 the transaction in which Elisa acquires 100% of Starman’s capital. The transaction is now expected to be closed during April. As a reminder, Elisa bought Starman on 13/12/2016 for €151m to strengthen its position in Estonia (10% of its business). Starman (€37m of revenues in 2015) is the Estonian pay TV market leader (35% market share), has high profitability (EBITDA margin of 49%) and a growth track record. It will allow Elisa to create a new integrated operator in Estonia (it is already the second mobile telco in this little country) with a cable network covering more than 50% of Estonian homes. Note Elisa was providing temporary loan funding to sellers (which will be repaid on the closing of the acquisition) so the net debt at the end of 2016 (€1.12bn) already includes the acquisition price of Starman.
Q4 revenues have increased by 7% yoy while EBITDA grew by 6% thanks to the consolidation of Anvia. Adjusted for this acquisition, revenues were, however, up by 2.5% while the EBITDA was up by nearly 3.5%.
Elisa has given a relatively cautious outlook for 2017: full-year revenue and EBITDA are estimated to be at the same level or slightly higher than in 2016. Full-year capex is expected to be a maximum of 13% of revenue (a number below the average of its peers but it’s quite logical given that Elisa’s 4G LTE network is already covering 100% of Finland). But this outlook does not include the recent Starman acquisition (for c.€150m) in Estonia. Note Elisa is providing temporary loan funding to sellers (which will be repaid on the closing of the acquisition and in April 2017) so the net debt at end 2016 (€1.12bn) already includes the acquisition price of Starman.
Q2 revenues increased by 1% yoy while EBITDA grew by 2% thanks to continued efficiency improvements. A quarter perfectly in line with expectations after a slightly better than expected Q1 (revenues were up by 2% yoy but EBITDA had grown in parallel by 6%).
A slightly better than expected Q1 for Elisa with revenues up by 2% yoy (to €390m), a number in line with expectations but EBITDA grew in parallel by 6% yoy (to €137m) thanks to continued efficiency improvements.
The outlook for 2016 is unchanged: full-year revenue and EBITDA are estimated to be at the same level as in 2015. Full-year capex is expected to be a maximum of 12% of revenue (quite logical given that Elisa’s 4G LTE network is already covering 98% of Finland).
A slightly better than expected Q4 for Elisa with revenues up by 5% yoy (to €404m) while the EBITDA, excluding non-recurring items, also grew by 5% yoy (to €131m) thanks to continued efficiency improvements. Note an exceptional charge of €3m which relates to personnel reductions.
The outlook for 2016 is quite similar to the one given last year: full-year revenue and EBITDA are estimated to be at the same level as in 2015. Full-year capex is expected to be a maximum of 12% of revenue (quite logical given that Elisa’s 4G LTE network is already covering 98% of Finland).
An as expected Q2 for Elisa with revenues up by 2% yoy (to €390m) while the EBITDA grew by 3% yoy (to €131m) thanks to continued efficiency improvements. Remember that three months ago Elisa had kicked off the telcos' Q1 release season with stable revenues and a slight 2% increase in the EBITDA.
The outlook for 2015 is unchanged: full-year revenue and EBITDA are estimated to be at the same level as in 2014. Full-year capex is expected to be a maximum of 12% of revenue (quite logical given that Elisa’s 4G LTE network is already covering 97% of Finland).
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Gamma is acquiring around 80% of HFO Holding AG (HFO), one of the leading SIP Trunk providers in Germany, for an initial consideration of €20.4m in cash with an option to purchase the remaining shares over the next three years. In line with its stated strategy, Gamma can invest and use its commercial strength and expertise to accelerate HFO’s growth and replicate the Group’s success in the UK by developing a market leading position in Germany. Noting net debt of €2.9m when the deal closed, the implied historical EV/EBITDA multiple of about 10x compares with Gamma’s equivalent of 18.7x. We estimate that the deal will be 4% earnings enhancing in the first full year of ownership and our estimate upgrades reflect that. The European markets for cloud telephony in which Gamma is now represented will ultimately overtake the UK in size, providing Gamma with significant future growth potential. We view this acquisition as another significant step in Gamma’s strategic aim to expand into Europe via exposure to another lucrative market opportunity.
Companies: Gamma Communications
U.S. futures and European stocks dropped on Friday as investors mulled a reported conflict among policy makers over a stimulus package for the single-currency region, as well as political upheaval in France.
The Stoxx 600 Index fell after Bloomberg News reported the European Central Bank is facing a potential rift over how much their emergency bond-purchase program should stay weighted toward weaker countries such as Italy. The euro fluctuated following French President Emmanuel Macron's decision to name a new prime minister after asking his government to resign. Rolls-Royce Holdings Plc slumped after the British jet-engine maker said its exploring options to raise funds to strengthen its balance sheet.
The dollar was slightly down, posting its first weekly drop in a month, while American cash equity and bond markets were shut for Independence Day. President Donald Trump will attend an early July 4 celebration at Mount Rushmore with thousands of guests who won't be required to wear masks, while his U.K. counterpart Boris Johnson urged Britons to act responsibly as pubs prepare to re-open and the government lifts quarantine rules on travel for 60 countries.
The friction at the ECB highlights the risk to markets should promised stimulus measures fall short. Investors continue to weigh policy support and upbeat economic data against relentless new outbreaks of the virus. U.S payrolls figures Thursday fuelled optimism of a V-shaped recovery in the world's biggest economy, even as Florida reported that infections and hospitalizations jumped the most yet, and Houston had a surge in intensive-care patients. Emerging-market stocks posted the biggest weekly gain in a month.
Elsewhere, crude oil dipped but remained on track for a weekly gain.
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Material acceleration of strategic plan
Companies: Melodyvr Group Plc
This is a positive trading update for a period impacted by the pandemic restrictions and uncertainty. The COVID-related global slowdown caused an 8% LFL YoY revenue decline to $166.5m in H1, but an improving gross margin and management’s temporary cost controls have protected earnings sufficiently to be ahead of H1 LY (adj. EBITDA of $16.0m). ‘Profit in cash’ (adj. EBITDA less capex and lease payments) is also ahead of the $2.6m seen LY. In fact, cashflow has been very healthy, net cash rising from $48.2m to $55.7m in the period, notably boosted by collections from the divested automotive business. A pleasing aspect of H1 is the continuing growth in higher-margin IoT services, up 12% YoY despite COVID. Easing of restrictions in H2 should see a return to more usual revenue and profit levels, and our FY 2020 earnings growth expectations remain unchanged despite revenue falling YoY – thanks to the cost savings management implemented. Looking further out to next year, a return to revenue growth and continued profit improvement is anticipated for FY 2021, due to pent-up demand and greater IoT adoption on concerns over physical restrictions in future pandemics. At the interim stage, Telit is well positioned to continue to deliver its impressive track record for earnings growth (we expect 9% adj. EBITDA growth this year and 19% next). Currently on an EV/EBITDA multiple of just 3.3x, the shares are deeply undervalued for a stock delivering such consistent profit progress with a very solid balance sheet in these uncertain times.
Companies: Telit Communications
The Coronavirus pandemic is a human tragedy of vast proportions – as well as the terrible human toll, COVID-19 has led to economies across the globe going into physical lockdown and financial freefall. Entire populations are adapting to the “stay at home” edict, to safeguard the vulnerable – and some of these changes will lead to long-lasting or perhaps permanent changes in the way we live or work. This note describes some of our client companies whose business models are well adapted to these changes, or who might see a change in long-term structural demand.
Companies: AMO BGO FDM GAMA KAPE LOOP TERN ZOO
Warren Buffett once said that as an investor, it is wise to be ‘fearful when others are greedy and greedy when others are fearful’. Fear is not in short supply right now.
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Telit has moved to preserve its profit levels during the COVID-19 pandemic. The widespread lockdown of unknown duration is likely to slow some of its YoY revenue growth, and we trim our FY 2020 revenue expectations, although we do still continue to expect LFL growth (excluding the two months of Automotive in FY 2019). Despite its significant cash reserves from the disposal, management is prudently adopting a cost-reduction plan to ensure the company’s earnings are maintained at the targeted level. Notably this involves a temporary 15% salary reduction for senior management and a reduction in all areas of discretionary spending, including opex and capex. Strategic plans (such as long-term product development and the movement of production outside China) will be unaffected. We are pleased to hear the supply chain remains steady with minimal disruption in module production as the lockdown across Asia is partially lifted. At this stage, we leave FY 2021 forecasts unchanged, given a strong market position.
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 AGM statement contains a sensible degree of caution around the impact of COVID-19 on the economic backdrop, mixed with its continuing growth story. The group is seeing strong demand for Cloud PBX and UCaaS (Unified Communications as a Service) products in the UK but notes some slowdown in new orders and a lengthening of sales cycles. The business model has successfully moved to home working and, with a high (93%) proportion of recurring revenue, the outlook remains bright. We take a prudent view in reducing our revenue estimates although the impact on EBITDA is more muted. The Group has a strong balance sheet, is cash generative and retains its previously announced dividend payment.
We’re just over three months in to 2019 and we’ve seen a 10% UK market rally, retracing much of the Q4 decline, such is the nature of fickle market sentiment. That said, many of the issues we wrote about three months ago that were impacting markets remain: notably Brexit, trade wars, geopolitics and global monetary policy. The 2019 rally thus far feels somewhat fragile, with competing forces of optimism on a potential trade deal which could underpin the rally, against the deterioration in underlying economic data that could ultimately undermine the recent market gains. In this context, we look at what the lead indicators and the market are telling us about the industrial cycle and the stocks most exposed to various industrial trends. The Q4 derating in short cycle industrials and autos had been vicious and while these sectors have seen a more solid footing in 2019, with earnings downgrades being priced in, it will likely take a trough in lead indicators before short cycle stocks can start to perform again and re-rate relative to the market.
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Bill McDermott stood down on Friday after a decade building up SAP as the world's leading enterprise software company, handing the task of completing its transition to cloud computing to new co-CEOs Jennifer Morgan and Christian Klein. SAP announced the management overhaul, with immediate effect, after rushing out third-quarter results that showed it gaining traction in its drive to offer a more streamlined range of services and boost profitability. The company’s stock has climbed 21% this year. It’s up 75% in the past five years, topping rival Oracle, which is up 46%, and the S&P 500′s 54% gain.
Companies: MVR TRAK CPX CALL ECK IMMO LOOP NET SEE TCM TRCS QTX VRE
Oil posted the biggest weekly plunge since 2008, capping its most dramatic week in recent memory as major producers prepare to drench the market with supply just as the coronavirus crushes demand. But prices jumped following the close, after President Donald Trump said the U.S. would fill the nation's strategic reserve. Losses for the week totalled 23% after the collapse of talks between members of the OPEC+ group triggered the biggest crash in a generation. Instead of reaching a deal to cut output to mitigate the fallout from the virus, producers led by Saudi Arabia and Russia embarked on a war for market share and pledged to pump more.
Companies: TGL TXP VLU EGY GTE CNE DGOC ENQ SQZ UKOG TRIN TLW PHAR
Pebble Beach Systems is a leading developer and provider of playout automation and IP-based solutions to over 150 customers across the global broadcast industry. Its portfolio of proprietary software solutions is central to the playout of uninterrupted broadcast, for both live and pre-recorded content, and importantly enables broadcasters to automate and streamline multi-channel playout. Via its cloud-based solutions, the company also supports broadcasters and operators as they transition from traditional hardware-based infrastructure to IP-based systems, for a more flexible playout environment. As the industry enters a pivotal decade for the transition to IP, Pebble Beach Systems is well positioned to benefit from the increased traction across the market. FY19 results show adjusted PBT growth of 89%, EBITDA growth (LFL, pre IFRS16) of 47% and revenue growth of 22%, with net debt continuing its descent, now down to £8.4m (FY18: £9.4m). While COVID-19 introduces uncertainty over growth, and we do not yet offer forecasts, the group’s existing customer base is benefiting from Pebble Beach’s automation and remote support as end-user demand for TV booms. We look forward to the post crisis environment to establish forecasts and map the continuation of the evident momentum demonstrated in FY19.
Companies: Pebble Beach Systems Group
Panoro Energy (PEN NO)C: Initiating coverage | 88 Energy (88E LN/AU): Acquisition in Alaska | BP (BP LN): Transaction in Alaska with Hilcorp renegotiated | Columbus Energy Resources (CERP LN): Oil discovery in Trinidad | Premier Oil (PMO LN) and Rockhopper Exploration (RKH LN): Sea Lion farm out (Falklands) exclusivity period extended | BP (BP LN): 1Q20 results | Equinor (EQNR NO): Dry hole in Norway | Getech (GTC LN): Business update | Hurricane Energy (HUR LN): Business update in the UK North Sea |IGas Energy (IGAS LN): Shutting some production in the UK | Lundin Energy (LUP SS): 1Q20 results | OKEA (OKEA NO): 1Q20 update in Norway | OMV (OMV AG): 1Q results | Premier Oil (PMO LN): Court approves schemes of arrangement | Royal Dutch Shell (RDSA/B LN): 1Q20 results and dividend reduction | RockRose Energy (RRE LN): Operational update in the UK | UK Oil & Gas (UKOG LN): £1.275 mm equity raise | Caspian Sunrise (CASP LN): Operating update in Kazakhstan | Exillon Energy (EXI LN): February and March production in Russia | Nostrum Oil & Gas (NOG LN): 1Q20 update in Kazakhstan | PetroNeft (PTR LN): Operations update | Genel Energy (GENL LN): Update in Kurdistan – While negotiations are ongoing the KRG will not exercise the notice of an intention to terminate the Bina Bawi PSC | ShaMaran Petroleum (SNM CN): Business update in Kurdistan | Tethys Oil (TETY SS): Production reduction in Oman | Total (FP FP): Dry hole in Lebanon | Aminex (AEX LN) and Solo Oil (SOLO LN): Licence extension in Tanzania | Far Limited (FAR AU): Update in Senegal | Lekoil (LEK LN): Final payment with Nigerian partner rescheduled | Orca Exploration (ORC.A/B CN): FY19 results | Savannah Energy (SAVE LN): Financial and operating update in Nigeria | San Leon Energy (SLE LN): Special dividend | Seplat Petroleum (SEPL LN): 1Q20 results
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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.
Companies: BT Group