Company Reports

Germany and the U.S. represent around 25% and 60% of Deutsche Telekom’s EBITDA, respectively. Instead of investing early in fiber-to-the-home Deutsche Telekom decided to upgrade its copper networks in Germany while charging incrementally higher prices when migrating customers to faster broadband speeds. Over the past decade, this has resulted in steady revenue growth in its German fixed-line segment, having one of the healthier growth rates in Europe. The firm will do a gradual rollout of FTTH during the next 10 years, something that will solidify its position as the broadband leader in the German market.

Narrow-moat Deutsche Telekom's results were satisfactory as expected. Management met all its guidance targets, gave a healthy outlook for 2024, and raised its dividend by 10% to EUR 0.77 per share, which had been announced in third-quarter 2023. For 2024, Deutsche Telekom expects adjusted EBITDA after leases to grow 6% to EUR 42.9 billion, compared with EUR 40.5 billion in 2023, and free cash flow to be up to EUR 19 billion from EUR 16 billion in 2023 as capital spending in the United States keeps declining. Execution in the U.S. and Germany remains strong. T-Mobile U.S. grew EBITDAaL by 3% due to higher service revenue and cost-controls. In Germany, Deutsche Telekom continues gaining market share from Vodafone in mobile and broadband, with EBITDAaL up 4.1% year over year. We maintain our EUR 25 fair value estimate for Deutsche Telekom. Despite Deutsche Telekom shares providing less upside than other European telecom companies under our coverage, it remains one of our preferred stocks. We like Deutsche Telekom’s strong competitive position in its core markets, reasonable dividend yield (3.5% as of Feb. 23), and its Exemplary Morningstar Capital Allocation Rating.

Narrow-moat Deutsche Telekom continues to outperform its European telecommunication peers. Shares are up 14% year to date supported by healthy revenue and EBITDA after leases performance in the U.S. and Germany. Management announced a dividend increase of 10%, from EUR 0.70 to EUR 0.77 per share, which represents a 3.5% yield. More importantly, this dividend yield is maintainable and we expect Deutsche Telekom will continue to raise dividends in the future due to its exposure to healthy markets. More importantly, this dividend yield is maintainable and we expect Deutsche Telekom will continue to raise dividends in the future due to its exposure to healthy markets, good cost management, and strong strategic execution. We remind investors that we assign Deutsche Telekom an Exemplary Morningstar Capital Allocation Rating. We maintain our EUR 25 fair value estimate, with shares offering 15% upside at this point.

Germany and the U.S. represent around 25% and 60% of Deutsche Telekom’s EBITDA, respectively. Instead of investing early in fiber-to-the-home Deutsche Telekom decided to upgrade its copper networks in Germany while charging incrementally higher prices when migrating customers to faster broadband speeds. Over the past decade, this has resulted in steady revenue growth in its German fixed-line segment, having one of the healthier growth rates in Europe. The firm will do a gradual rollout of FTTH during the next 10 years, something that will solidify its position as the broadband leader in the German market.

Narrow-moat Deutsche Telekom, or DT, recorded another consecutive quarter of EBITDA after leases, or EBITDAal, growth thanks to steady performance across all its portfolio and cost controls. Group services increased by 2.9% organically, which translated into adjusted EBITDaL growth of 2.4% during the first half of the year. DT is compensating raises in salary and energy costs with personnel reductions and other cost efficiencies, having reduced its headcount by 2.6% year over year to 205,000 employees. We maintain our EUR 25 fair value estimate with shares offering a 30% upside for patient investors. Deutsche Telekom remains one of our preferred European telecommunication stocks given its Exceptional capital allocation rating and exposure to stable markets with healthy pricing and competitive trends. We also expect Deutsche Telekom to keep increasing its dividends at steady midsingle digits in the coming years.

Narrow-moat Deutsche Telekom started the year on a good note. This followed its typical approach and it raised guidance slightly for 2023. Service revenue was up 2.6% year over year supported by the U.S. and Germany, while adjusted EBITDA after leases grew only 0.9%, as price increases across Deutsche Telekom’s portfolio have been offset by cost inflation pressures in energy and wages. However, we believe that Deutsche Telekom is doing a good job keeping personnel expenses under control; headcount remained flat year over year. We maintain our EUR 25 fair value estimate with shares offering 15% upside at this point. Deutsche Telekom is one of our preferred picks among European telecommunication companies we cover given its solid position in the U.S and Germany and its Exemplary Morningstar Capital Allocation Rating.

Germany and the U.S. represent around 25% and 60% of Deutsche Telekom’s EBITDA, respectively. Rather than investing early in fiber-to-the-home, or FTTH, Deutsche Telekom decided to upgrade its copper networks in Germany while charging incrementally higher prices when migrating customers to faster broadband speeds. Over the past decade, this has resulted in steady revenue growth in its German fixed-line segment, having one of the healthier growth rates in Europe. The firm will do a gradual rollout of FTTH during the next 10 years, something that will solidify its position as the broadband leader in the German market.

Deutsche Telekom followed its habit of underpromising and overdelivering. It closed 2022 by beating its own guidance, which had already been raised several times during the year. Management reviewed its track record since 2018, highlighting that most targets have been achieved or surpassed. Since 2018, group service revenue has grown at an annual rate between 1.6% and 3.7% organically with adjusted EBITDA after leases growing in the 4.2% to 7.9% range annually. When excluding the U.S., Deutsche Telekom’s growth engine, adjusted EBTIDAaL has grown at a 2.4% to 4.8% rate annually, a performance that pleases us. Deutsche Telekom shares have had a very strong performance in the past year, beating indexes like the S&P 500 and STOXX 600, and are currently trading at around EUR 21 per share. We maintain our EUR 23 fair value estimate and remind investors that Deutsche Telekom has a narrow moat rating and an Exemplary Morningstar Capital Allocation Rating.

Deutsche Telekom raised its financial outlook for the third time during 2022. We are not surprised as management tends to be prudent in its guidance, normally underpromising and overdelivering. Dividends for fiscal-year 2022 were also raised by 10% year on year aided by the good results, from EUR 0.64 to EUR 0.70 per share. Group service revenue has grown organically by 4.0% during the first nine months of the year, while EBITDA after leases (EBITDAaL) has grown by 5.9%. The U.S. has been the main growth engine, up by midsingle digits each quarter, with Germany also performing well, up 2.7% organically the past two quarters. Management seems to be managing inflationary pressures well in its cost base, with most energy costs being hedged and cost savings measures in place, which are helping EBITDAaL growth. We are maintaining our EUR 22 fair value estimate, which represents a 15% upside at today’s prices.

Deutsche Telekom made a slight upgrade to its guidance during its second-quarter earnings release and now expects EBITDA (after leases) to be 1% higher compared with the previous outlook. We are not surprised by this as management tends to be conservative in its guidance, usually making improvements through the year. Deutsche Telekom remains one of our favorite names in European telecom, given its exposure to growing and rational markets (Germany and the United States) and our Exemplary capital allocation rating. We are maintaining our EUR 23 fair value estimate, with the shares providing 22% upside at this point.

We relaunch coverage of Deutsche Telekom, upgrading its moat rating to narrow from none. The main reason for the update is our upgrade of T-Mobile US to narrow moat after the acquisition of Sprint (Deutsche Telekom owns around 50% of T-Mobile US). The merger with Sprint has consolidated the U.S. wireless market from four to three mobile network operators, or MNOs, allowing T-Mobile to almost double in size. We believe this should be positive for pricing going forward, as it is in the interest of the main three carriers (Verizon, AT&T, and T-Mobile) to maintain price stability. Larger scale has also brought significant network and personnel synergies to T-Mobile US, something we see as structurally positive for margins going forward. The integration of Sprint has been successful so far, with most of the uncertainty already behind it. Our moat trend rating remains at stable. We are increasing our fair value estimate to EUR 23 from EUR 17 after updating our forecasts and accounting for the moat upgrade.

Germany and the U.S. represent around 25% and 60% of Deutsche Telekom’s EBITDA, respectively. Rather than investing early in fiber-to-the-home, or FTTH, Deutsche Telekom decided to upgrade its copper networks in Germany while charging incrementally higher prices when migrating customers to faster broadband speeds. Over the past decade, this has resulted in steady revenue growth in its German fixed-line segment, having one of the healthier growth rates in Europe. The firm will do a gradual rollout of FTTH during the next 10 years, something that will solidify its position as the broadband leader in the German market.

Deutsche Telekom followed the trajectory seen in previous months and, as usual, management raised full-year guidance given it normally provides conservative numbers. EBITDA is now expected to be above EUR 36.6 billion compared with the EUR 36.5 billion expected before. In the first quarter, revenue grew 6% on reported terms and 1.7% organically and EBITDA (after leases) saw 2.4% organic growth. We maintain our EUR 17 fair value estimate and no moat rating.

Deutsche Telekom met its financial targets for 2021 after having raised them in the third quarter, with adjusted EBITDA (after leases) slightly below the high part of the guided range and free cash flow after leases exceeding expectations. However, shares are tumbling by more than 5% at the time of the writing due to the general market decline following Russia's invasion of Ukraine. We are maintaining our EUR 17 fair values estimate, which implies a 10% upside.

Deutsche Telekom is set to close a good 2021 as it raised its EBITDA and free cash flow guidance for the third time this year. We believe management has been setting a conservative guidance outlook and raised it as the execution played out. The company now expects EBITDA (after leases) of around EUR 38 billion and free cash flow of around EUR 8.5 billion compared with previous guidance of “at least” EUR 37.2 billion and EUR 8 billion, respectively. Management also raised its 2021 synergy guidance for the acquisition of Sprint and now expects synergies of EUR 3.2 billion-3.5 billion, compared with EUR 2.9 billion-3.2 billion before. Deutsche Telekom raised its dividend from EUR 0.60 per share to EUR 0.64 for the year, which we see as a reasonable capital allocation decision, considering the company’s sustainable dividend policy and given the improved 2021 results. We are maintaining our EUR 17 fair value estimate.

We are pleased with T-Mobile US' (44% owned by Deutsche Telekom, or DT) strategic move to merge with Sprint. In the long term, DT should benefit from larger operational scale and the additional spectrum holdings from the Sprint merger. Since the closure of the merger in 2020, T-Mobile has made decent progress on the integration by cutting costs through network and personnel efficiencies. DT has a good track record of past acquisitions, like MetroPCS in the U.S, and we believe DT is well positioned to achieve a sustainable place in the U.S. telecom landscape, where it has been gaining market share for several quarters. As a result, after the integration phase, we expect margin expansion and an improved business profile. This should enable DT’s U.S. business to fund the investments needed to remain competitive while generating acceptable returns on capital.

No-moat Deutsche Telekom (75%) and narrow-moat Tele2 (25%), who jointly own T-Mobile Netherlands, or T-Mobile NL, have agreed to sell the entity to private equity firm Apax Partners for EUR 5.10 billion. Although the transaction price is higher than what we would have anticipated, it does not have a material impact on our valuations. Our forecasts were already considering the value of T-Mobile NL and the business as small relative to the size of Deutsche Telekom and Tele2; hence we are maintaining our fair value estimates for the latter two companies.

No-moat Deutsche Telekom reported no surprises in its second-quarter results. T-Mobile U.S. which had already reported last week, continued executing well on its integration with Sprint, slightly raising customer, EBITDA and synergy guidance for 2021 in the U.S. This resulted in Deutsche Telekom also raising its EBITDA guidance for 2021, from more than EUR 37.0 billion to over EUR 37.2 billion. We maintain our fair value estimate of EUR 17.0 per share for Deutsche Telekom.

We are pleased with T-Mobile US' (44% owned by Deutsche Telekom, or DT) strategic move to merge with Sprint. In the long term, DT should benefit from larger operational scale and the additional spectrum holdings from the Sprint merger. Since the closure of the merger in 2020, T-Mobile has made decent progress on the integration by cutting costs through network and personnel efficiencies. DT has a good track record of past acquisitions, like MetroPCS in the U.S, and we believe DT is well positioned to achieve a sustainable place in the U.S. telecom landscape, where it has been gaining market share for several quarters. As a result, after the integration phase, we expect margin expansion and an improved business profile. This should enable DT’s U.S. business to fund the investments needed to remain competitive while generating acceptable returns on capital.

No-moat Deutsche Telekom reported strong first-quarter results and slightly raised its 2021 guidance for the European business, where it now expects EBITDA (after leases) of around EUR 14.4 billion, compared with EUR 14.3 billion before, and free cash flow of around EUR 3.6 billion, compared with EUR 3.5 billion before. In the United States, T-Mobile keeps delivering and already announced last week $0.1 billion in additional synergies from the Sprint deal, bringing total synergies to $2.8 billion-$3.1 billion in 2021. We are maintaining our fair value estimates of EUR 17 per share and $20 per ADR.