Valuation Station - Sun On Stores
Enough confidence back from our CEO Conference to buy Telcos? Management commentary from our CEO Conference earlier in June was relatively positive with an outlook, if not unchanged, helped by a renewed focus on connectivity. However, this also fuels the debate on whether the sector can benefit from lighter regulatory oversight or contrariwise, will be forced to put more Capex into the ground. Whilst the sector continues to look cheap on FCFE yield (48% discount to the market is well above the long-run average), on an unlevered yield basis the sector trades bang in line with its long-run average. Fundamentally, we still have many concerns over the sector; this has only been exacerbated by Covid-19 - see Five minutes of Fame and a first sequential deterioration in mobile pricing since 1Q19 - see our Trends Tracker preview. Fundamentals still down on 12-month view, with EBIT at c-9% and OpFCF at c-22.5% Consensus sales estimates were up +1.4% in June, reversing some of the earnings cuts of March as Europe opened back its doors (and shops). However, the more optimistic outlook is less clear on margin, with EBIT down -1.6% (but EBITDA up +0.6%). Capex estimates were also up +3.6% (but are only up +0.7% since February-end) leading to an overall OpFCF downgrade of -6.8% (proxy from EBIT; -2.4% from EBITDA). MAS(=) and EKT(-) were winners and FNET(-) and TT(-) the losers last month MasMovil''s take-out offer saw the stock rise above the EUR22.5 bid on June 1th whilst elsewhere in Spain, Euskaltel benefited from rising consolidation hopes. Contrariwise, Freenet''s dividend cut and larger COVID exposure continued to drive outflows whilst TalkTalk results raised investors'' worries on the cash-burn of the business (with the concerns further fuelled by the debate on the accounting treatment of ''contracts costs''). July trade: we prefer VOD(+) over TEF(-) Vodafone''s guidance looks the most conservative in the sector (Worst Case in the Price?) and its CEO...
ELISA EN SCMN TIT BT.A TDE KPN VOD DTE ORA TEL2B MOBB TELIA TEL UTDI ILD PROX LBTYA TNET FNTN DRI TALK O2D MAS ATC SRCG CLNX EKT INW AAF
03 Jul 20
Trends Tracker: 2Q20 Mobile Pricing
Our quarterly Trends Tracker compiles over 600 mobile price points across 11 markets, reviewing pricing trends over the past 4 years to help inform our outlook for future MSR growth. Combined with our other sector periodicals, Valuation Station (monthly consensus revisions), and European Phonebook (quarterly review of the sector), we use this to identify inflection points in individual markets. Together with our flagship thematic reports, STAMP 2020 and the 1, 3 and 5-year view, this framework seeks to provide investors with a range of ST and LT investment opportunities. Mobile pricing debate is more complicated than it seems Our work shows that median mobile prices increased +6.5% in Europe in 2Q20 with frontbook prices now 17% above last year''s backbook ARPUs. However this doesn''t tell the full story as (1) QoQ pricing saw the first sequential deterioration since 1Q19; (2) there is now enough data headroom to stream an extra 1h of Netflix every day; (3) pricing in the key 5-30GB segment fell -16% yoy; and (4) incumbents continue to raise prices, but challengers are maintaining their discounts to continue to take share. Excess data supply, and the low marginal cost in supplying more GBs, still leave us cautious on MSR growth. We forecast a -3.2% mobile service revenue decline in 2Q20 (down from -1.3% in 1Q20) as COVID-19 takes its toll. There''s still a wide variance between ''good'' and ''bad'' markets France continues to improve following the hefty promotional levels of last year, despite a slight sequential deterioration (Year of the Rat with ILD+ EN+ and ATC+). Norway, Finland (ELISA+ Irresistible Force Meets Immovable Object?) and Sweden (TEL2B+ The Winner Takes It All) continue to retain some ''safe haven'' status as should Germany (O2D+ Appetite for construction?), Switzerland (SRCG+) and the Netherlands to a lesser degree. Conversely, the UK (BT/A- How bad could it be?) screens poorly, following a rapid growth in data allowances and...
ELISA EN SCMN TIT BT.A TDE KPN VOD DTE ORA TEL2B MOBB TELIA TEL UTDI ILD PROX LBTYA TNET FNTN DRI TALK O2D MAS ATC SRCG CLNX EKT INW ATUS AAF
01 Jul 20
We''ll remember our 22nd CEO Conference for two reasons. First, it was the biggest ever: 100 CEOs and 2,100 investors taking over 16,000 seats. The second? No prizes for guessing. Next year we aim to combine our real and virtual worlds, and hope to see you in Paris... or on screen! The most up-to-date view from corporate Europe We''ve condensed and cleanly presented all the highlights from the management presentations. It''s your comprehensive guide to the key takeaways from 124 leading European companies. Who would you most like to sit beside the fireside with? Our most-attended presentation was, as last year, ASML, followed by L''Oreal, Danone, Michelin and Linde. See One for the Kidz for our ten-year view on ASML, L''Oreal, and more. Keynote speakers: a wide-angle view on unprecedented times Laurent Solly (Facebook) outlined his vision of tech opportunities, Joerg Kukies (German Finance Ministry) discussed globalisation and finance and Sir Martin Sorrell (S4 Capital) took the measure of consumer and citizen changes. Megatrends: change is accelerating Attendee after attendee observed that Covid-19 is both leading to transformations and ratcheting up existing trends, notably digitalisation. Watch this space. Good, bad or ugly? The answer was: ''Very good, actually'' If we had one big surprise, it was the number of positive messages. Managements clearly feel they are resilient, can grow and in some cases can acquire weaker rivals. ESG remains at the heart of our collective future Nothing in the current crisis seems to have dented the widespread desire by corporates to ramp up their environmental and social strategies.
ELISA BFA LIN EOAN AKZA DSM AC EN BN CAP COD ROG SU HO ERICB BP/ ADEN FGR AI CA BIM ATO MAERSKB ASML ERF CNP GET AAL ENEL MT FDR DPW NZYMB DEC APD FCX ACA CRDA EZJ DCC ILD EDF ALO ETL AKE FRE GALP FMC AMS EDEN EVK CCH ELIOR AXTA 1COV AMUN
19 Jun 20
Still too expensive
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%.
22 Apr 20
The most expensive telco
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
30 Jan 20
The first Nordic operator to sell a 5G phone to a customer
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.
12 Jul 19
A secure telco offering a 4.5% dividend yield
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.
31 Jan 19
Elisa, without external growth, is a classic no-growth story
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.
18 Oct 18
A dividend that deserves an extra upside
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.
31 Jan 18
A little expensive given the low organic growth
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.
18 Oct 17
Elisa strengthens its positions through small acquisitions
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.
18 Jul 17
Correct Q1 with data services continuing to evolve favourably
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.
20 Apr 17
Reinforcement through little acquisitions
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.
30 Jan 17
Still expensive for a no-growth story
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%).
18 Jul 16
Ahead of schedule after solid EBITDA growth in Q1
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).
15 Apr 16
A good Q4 but a no growth story for 2016
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).
02 Feb 16
Slight growth in Q2
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).
16 Jul 15