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TELEFONICA DEUTSCHLAND HOLDI
TELEFONICA DEUTSCHLAND HOLDI
Slight upgrade in the synergy target for 2019
22 Feb 17
Q4 revenues showed a slight continued decline with a yoy decrease of 6% to €1,936m (vs a 5.7% yoy decline during the first 9m). Note that, as in the previous quarter, this is mainly a result of the decline in handset revenues. Handset revenues fell by 17.6% yoy, reflecting longer replacement cycles and handset saturation in the German market. The key point is that Mobile service revenues (which represent 75% of the global business) declined by only 2.1% yoy in Q4, as in previous quarters, and by only 0.9% excluding the effects of the mobile termination and roaming rate cuts. As in the previous quarter, the good news is the EBITDA growth of 5.3% yoy (+3.8% for the whole year), thanks to the successful capture of synergies (mainly related to employee restructuring). Management has given its outlook for 2017: absolutely no surprise with slightly negative to flat yoy mobile service revenues and a flat to mid single-digit percentage growth for EBITDA.
Improvement in EBITDA margin but until when?
26 Oct 16
Q3 revenues showed a slightly improving trend with a yoy decline of 5.2% to €1,876m compared to -5.9% yoy in Q2. Note that as in the previous quarter this is mainly a result of the handset revenue declines. Handset revenues fell by 24.5% yoy (-25.5% in Q2) reflecting longer replacement cycles and handset saturation in the German market. The key point is that Mobile service revenues (which represent 75% of the global business) declined by only 1.8% yoy in Q3, as in Q2, and by only 0.9% excluding the effects from mobile termination and roaming rate cuts. Like the previous quarter, the good news is the EBITDA growth of 3% yoy, thanks to the successful capture of synergies (mainly related to employee restructuring). Management has reiterated its full-year outlook for 2016: a slight decline in mobile service revenues and a low to mid single-digit percentage growth for the EBITDA.
Pushing ahead with the integration of E+
01 Aug 16
H1 revenues totalled €3.69bn, lower 4.1% yoy. Handset revenues fell by 15.9% yoy to €493m (-25.5% yoy in Q2), reflecting longer replacement cycles and handset saturation in the German market in line with broader European markets. The key point is that Mobile service revenues (which represent 75% of the global business) declined by 1.7% yoy in Q2 (vs -1.3% in Q1). Like in the previous quarter, the good news is the EBITDA growth of 1.2% yoy, even if it is lower than in Q1 (+6.2%!), thanks to successful synergy capture. The group has reiterated its full-year Mobile service revenues outlook, but has narrowed the range from “slightly negative to broadly stable” yoy to “slightly negative” yoy on the back of increased competition, especially in the non-premium end of the market. Note, however, that data usage and the LTE customer base continue to grow: the group still expects it will drive an inflection point in the revenue trajectory in the future. The narrowing of the revenues outlook range has no impact on the EBITDA outlook, as it continues to benefit from the roll-over effects of the successful integration initiatives in 2015, as well as pushing ahead with employee restructuring, customer migration and network integration efforts in 2016. But the group has also adjusted positively its capex outlook from “percentage growth in the low tens to mid” to “high single-digit growth”. This is largely the result of more efficient capex spend as well as phasing topics related to the network integration.
The new German mobile leader
19 Feb 16
h1.Business After the acquisition of E+ from KPN, Telefonica Deutschland has become the largest mobile operator in Germany with c.43m customers. Its two main competitors are Deutsche Telekom and Vodafone with respectively 39-40m and 31m mobile subscribers (at end 2015). The mobile market in Germany is perfectly mature and we don’t expect any major changes in the respective market shares of the three main competitors in the near future. There is no real mobile price war in Germany (Deutsche Telekom is not required to offer the latest wireless technologies, such as LTE, to cut-rate MVNOs, which undermines the competitiveness of discounters) and the mobile bundles are quite similar. The main issue for a pure mobile telco like Telefonica Deutschland is the strategy on Fixed as in some European countries the quadruple play (which links mobile with broadband fixed services) is the only way to move the lines and win new customers thanks to attractive bundles. TEF Deutschland is the German mobile player which is not really present on Fixed while its two main competitors could be more aggressive with attractive bundles thanks to the comfortable margin they generate on their Fixed activities (ultra-fast broadband networks need perhaps huge capex but they generate impressive EBITDA margins above 45%). In a mature mobile country like Germany, TEF Deutschland should maintain its market share at 35-40% and record slight growth over the next three years thanks to an ARPU which is relatively stable with the wide use of 4G. Note 5G should be deployed from the end of the decade and will allow the rise of the IoT (Internet of Things). h1.Recommendation and upside We are initiating coverage of Telefonica Deutschland (with a market cap of €13.5bn and a float of c.23%) with a add recommendation and 15% upside. h1.Slowly but surely improve the EBITDA margin With market shares which are unlikely to move in the short term and stable prices, the only way for the group to improve its margins is to increase productivity. The EBITDA margin of the new group should be 22.5% in 2015 and the objective is clearly to raise this quickly towards the 25% level thanks to the productivity gains due to the merger. It will probably be difficult to go beyond 25% if the group is still present only on the mobile side in Germany and can not rely on stronger margins on Fixed to develop profitable quadruple play offers. Note that at the end of the decade with the emergence of the IoT (Internet of Things), growth could be higher and margins could improve further. h1.Need to know Telefónica controls 62% of the group and a third of the supervisory board is made up of managers of Telefonica not working in its German subsidiary. Telefonica is a quite heavily-indebted group; its net debt before the approval of the sale of its UK subsidiary (O2 UK) was more than 3x its EBITDA. The listing of its German subsidiary (which represents 15% of its overall turnover) is aimed primarily to allow it to raise funds in case of an external growth transaction. Thus the acquisition of E+ has brought KPN to hold a 20% stake in Telefonica Deutschland (15% at end 2015). This may allow the latter to mix paper and cash in the case of a large scale operation with a Fixed operator in Germany (the group could be interested in a partnership with United Internet or Unitymedia, the two Fixed players which are not really present on the mobile side). Meanwhile, Telefonica should impose on its subsidiary to pay a substantial annual dividend.
Making Mobiles Better
17 Jan 17
Mobile phones are increasingly the key connection for the modern world. This means that the performance of mobile phones, and their networks, is going to become more critical for all the apps and businesses that rely on them. New technologies such as VR, AR, and AV will need better, more reliable connections to really move into the mainstream. In this thematic piece we attempt to identify some of the most important issues facing mobile phone networks and their users, and start to identify solutions and enablers that will solve these problems and create value by doing so.
FY 2016 results confirm further strong delivery
21 Mar 17
Gamma’s FY 2016 revenues, Adjusted EBITDA and Adjusted EPS numbers were a touch ahead of our estimates. We make small upward adjustments to forecasts for all three years of our forecast horizon reflecting that performance. Gamma is capitalising on its position as a nimble player in an attractive marketplace. It made strong progress in 2016 as Voice over IP technology drove uptake of SIP Trunking and Hosted PBX services - both areas where Gamma has strong platforms. In addition, data services reflected Gamma’s investment in its network, channel partner numbers increased again and the indirect business accordingly showed strong revenue growth. The Direct Business also produced good growth and won some significant new contracts. The outlook statement is ’enthusiastic’ about the current year and comments that the Board ‘remains open to suitable M&A opportunities and areas for strategic capital investment’. Overall, an optimistic picture, in our view.
Panmure Morning Note 18-07-2016
18 Jul 16
We look for an in-line set of H1s from Spirent; this follows the Q1 beat. Look for good cash generation, good performance in the Networks division, ‘spotty’ at Wireless division, regionally growth in APAC offset by North America and EMEA customers who are “slow to release budgets”. Spirent should reaffirm the FY outlook – but will flag currency. Whilst the macro backdrop remains fragile, in truth Spirent is a story of getting its house in order and achieving better sales execution. We reiterate that our general investment view (Buy when others are frightened) has captured the zeitgeist and shares have performed well this year. That said there are some neat big picture drivers; 5G remains a prize being dangled as are the opportunities in IoT, high-speed data centre and driverless cars – indeed these should ensure that the shares pick up some Arm-related enthusiasm. Spirent enjoys an attractive valuation (2016E EV/Sales 1.1x, 7.0x EV/EBITDA) relative to sector peers (see table) despite sporting similar operating KPIs (see table). Our target price is 120p. Buy
Panmure Morning Note 13-06-2016
13 Jun 16
More news on 5G means a favourable read-across for the key 5G ‘name’ – Spirent. Today the Dutch Ministry of Economic Affairs has gathered 10 partner organisations together to run a 5G test in North Groningen – tests to be carried out at the end of the year. This is favourable for Spirent as it illustrates that 5G is getting closer and with it raises the possibilities of earlier revenue opportunities for Spirent. Short term is good for share sentiment. We retain our Buy.
The Slide Rule
12 Jan 17
What is The Slide Rule? The Slide Rule has been designed to dramatically simplify the identification of the best companies in the UK small/mid-cap sector by making a quantitative assessment of the relative potential of each company. At its core, The Slide Rule aims to identify those companies that create genuine shareholder value through strong returns on capital and solid growth, but also present a value opportunity with the potential tailwind of earnings momentum. Companies are assessed within a Quality, Value, Growth and Momentum (QVGM) framework.
Signs of recovery after a difficult 2016
08 Mar 17
As flagged by the recent trading update, group FY 2016 revenue slipped 7% YoY to $90.4m; 43% ($38.5m) of this came from Telecoms, which saw the majority of the decline in revenue as the legacy copper-based equipment sales continue to be wound down. The Bio-Medical division sales slipped just 2% YoY to $51.6m; a poor year from sterilization being compensated for by growth in diagnostics. While gross margins remained firm in both divisions (40% and 25% respectively), both slipped into operating loss; a hefty $2.2m from Telecoms (due to the loss of revenue from contracts) and $0.3m from Bio-Medical; however, the $2.5m operating loss was covered by an exceptional $3m profit on sale of a property. That sale helped cash; $1m received from operations was offset by $6m capex but cash from the sale of assets lifted BATM’s net cash from $21m to a welcome $23m at the year end.