Company Reports

Narrow-moat KPN has started 2024 on a strong note with revenue and adjusted EBITDA after leases growing 3.3% and 3.6%, respectively and management raised guidance slightly after the acquisition of Youfone. KPN now expects adjusted EBITDAaL of EUR 2.5 billion in 2024 compared with EUR 2.48 billion before. Growth from KPN is two-sided: first, the Dutch telecom market remains highly rational, with the overall market growing by 4.3% in fourth-quarter 2023, according to Telecompaper. This is an exception as many telecom markets across Europe tend to shrink and not grow. Second, KPN is outperforming its peers, especially in the broadband segment, where it is gaining market share from VodafoneZiggo as the company keeps rolling out fiber to the home in the Netherlands. We maintain our EUR 3.20 fair value estimate, with shares being slightly overvalued. KPN, together with Deutsche Telekom and Tele2, remains one of our favorite picks among European telecom companies. KPN aims to grow dividends at a 7% compounded annual growth rate until 2027, in addition to EUR 200 million of yearly buybacks, which we see as maintainable.

KPN is the incumbent telecom operator in the Netherlands, operating in the fixed-line and mobile markets. It has maintained a stable market share during the past decade in broadband, where it shares leadership with peer VodafoneZiggo (40% each). We believe the Dutch broadband market to be a rational oligopoly where both players prefer not to engage in aggressive market share shifts but rather maintain stable positions, executing slight price increases each year. The mobile market, where KPN has a 20% share, has three major operators (KPN, VodafoneZiggo, and Odido, previously T-Mobile Netherlands), which allows for overall market stability.

We are raising our fair value estimate for narrow-moat KPN to EUR 3.20 per share from EUR 3.00, as we raise our medium-term forecasts. We model a 2% compounded annual growth rate, or CAGR, in adjusted EBITDAaL for the next five years, slightly more conservative than management’s 3% CAGR until 2027, as KPN capitalizes on revenue growth and cost controls. In 2023, KPN has managed to grow its top line by 1.7% mainly aided by its mobile and converged businesses. Although EBITDAaL only grew 0.6% in 2023 due to inflationary pressure, we believe the firm can accelerate growth going forward as it keeps growing revenue—reducing costs—and as inflation cools down. KPN will raise dividends by 13% in 2024 to EUR 0.17 per share compared with EUR 0.15 in 2023, and then grow them at a 7% CAGR from 2024 onward. This target looks achievable given the firm enjoys a healthy gap between its free cash flow and its dividend payments. We also assume KPN will execute EUR 200 million to EUR 300 million of share buybacks per year.

KPN is the incumbent telecom operator in the Netherlands, operating in the fixed-line and mobile markets. It has maintained a stable market share during the past decade in broadband, where it shares leadership with peer VodafoneZiggo (40% each). We believe the Dutch broadband market to be a rational oligopoly where both players prefer not to engage in aggressive market share shifts but rather maintain stable positions, executing slight price increases each year. The mobile market, where KPN enjoys a 20% share, has three major operators (KPN, VodafoneZiggo, and T-Mobile Netherlands) and has recently been more competitive than broadband, as T-Mobile has been gaining share for several years by offering lower prices and more flexible terms.

KPN is the incumbent telecom operator in the Netherlands, operating in the fixed-line and mobile markets. It has maintained a stable market share during the past decade in broadband, where it shares leadership with peer VodafoneZiggo (40% each). We believe the Dutch broadband market to be a rational oligopoly where both players prefer not to engage in aggressive market share shifts but rather maintain stable positions, executing slight price increases each year. The mobile market, where KPN enjoys a 20% share, has three major operators (KPN, VodafoneZiggo, and T-Mobile Netherlands) and has recently been more competitive than broadband, as T-Mobile has been gaining share for several years by offering lower prices and more flexible terms.

Narrow-moat KPN’s revenue grew 2.2% in the third quarter to EUR 1.36 billion. EBITDA after leases grew by 1.6% to EUR 629 million, a 46.1% margin. In the consumer market mobile revenue grew by a strong 5% in line with previous quarters, whereas broadband service revenue returned to growth (2.6%) after several quarters of flat growth or small declines. We maintain our EUR 3.00 fair value estimate and shares remain fairly valued at this point. KPN intends to distribute a EUR 0.15 dividend in 2023, which represents a 5% yield at this point. We also see KPN’s dividend as maintainable and with room to grow at low single digits to midsingle digits thanks to its steady performance in the Netherlands and continuous cost-controls.

In the second quarter of 2023, KPN reported service revenue growth of 2.8% year over year supported by a stable customer base and slight price increases. As we saw in the prior quarter, this revenue growth did not flow to the EBITDA after leases, or EBITDAaL, which remained flat, as costs are increasing at the same pace. Growing revenue but flat or declining EBITDAaL growth has been a general narrative this quarter among telecommunication operators as they cannot avoid growth in personnel and energy expenses, which normally are indexed to inflation. KPN has locked in energy prices for the remainder of the year and has implemented price increases in its broadband offerings, which should help EBITDAaL in the second half of the year. KPN is one of our favorite European telecommunication companies from a cost management perspective, having shown very good discipline for years. We are maintaining our EUR 3.00 fair value estimate and believe shares are slightly expensive now, trading at around EUR 3.30.

Dutch telecoms operator KPN announced on June 19 the acquisition of regional fibre operator Primevest in the Netherlands. The acquisition will add 127,000 fiber-to-the-home premises in Rotterdam, the Hague, and Eindhoven to KPN’s footprint. This will add to KPN’s existing FTTH footprint of 3.8 million premises, bringing the company’s total to nearly 4 million. We maintain our narrow moat and EUR 3.00 fair value estimate for KPN.

Narrow-moat KPN’s service revenue grew by 1.2% organically while EBITDA after leases, or EBITADaL, fell 1.6% year over year largely on higher inflation costs. Total operating expenses increased by 4.4% in the first quarter, largely due to higher energy costs, which increased by almost 20%. Personnel and IT expenses fell by 1.3% and 4.7%, respectively. Despite the higher costs, KPN remained confident it can reach its 2023 EBITDAaL guidance, which aims for EBITDAaL of EUR 2.4 billion, flat compared with 2022. The 2023 guidance of flat EBITDAaL looks reachable to us, considering KPN has historically done a good job at keeping costs under control. We will continue to monitor EBITDAaL and cost performance through the year, and we are maintaining our EUR 3.00 fair value estimate, with shares being slightly overvalued at this point. We recommend KPN to dividend investors looking for an attractive, but maintainable, dividend yield thanks to the stability of the Dutch market and a strong focus on cost controls.

KPN is the incumbent telecom operator in the Netherlands, operating in both the fixed-line and mobile markets. It has maintained a stable market share during the past decade in broadband, where it shares leadership with peer VodafoneZiggo (40% each). We believe the Dutch broadband market to be a rational oligopoly where both players prefer not to engage in aggressive market share shifts but rather maintain stable positions, executing slight price increases each year. The mobile market, where KPN enjoys a 20% share, has three major operators (KPN, VodafoneZiggo, and T-Mobile Netherlands) and has recently been more competitive than broadband, as T-Mobile has been gaining share for several years by offering lower prices and more flexible terms.

Narrow-moat KPN met its own guidance for fourth-quarter 2022. Service revenue grew by 1.5% organically while EBITDA after leases grew 2.4% year over year. As usual, KPN has kept operating expenses in check, growing by just 0.8% during the whole of 2022, something we consider a success given the current energy and inflationary environment. As guided by KPN last quarter, it expects flat EBITDAaL during 2023 even in the current environment of high energy prices. Despite flat expected growth in 2023, management intends to grow dividends by almost 5%, from EUR 0.143 to EUR 0.150 per share, which we believe is achievable, as there is enough cash flow available for dividends after servicing debt. It also intends to repurchase EUR 300 million in shares (like it did in 2022), although we see a neutral impact on shareholders here unless shares trade below our EUR 2.80 fair value estimate, which we maintain. We recommend KPN to dividend investors looking for an attractive, but maintainable dividend yield thanks to the stability of the Dutch market and a strong focus on cost controls.

KPN is the incumbent telecom operator in the Netherlands, operating in both the fixed-line and mobile markets. It has maintained a stable market share during the past decade in broadband, where it shares leadership with peer VodafoneZiggo (40% each). We believe the Dutch broadband market to be a rational oligopoly where both players prefer not to engage in aggressive market share shifts but rather maintain stable positions, executing slight price increases each year. The mobile market, where KPN enjoys a 20% share, has three major operators (KPN, VodafoneZiggo, and T-Mobile Netherlands) and has recently been more competitive than broadband, as T-Mobile has been gaining share for several years by offering lower prices and more flexible terms.

Narrow-moat KPN's third-quarter results were aligned with company consensus. Sales grew by 1.9% organically while EBITDA after leases grew 1.8% year over year. We believe the company won’t struggle to reach its 2022 objective of EUR 2.4 billion in EBITDAaL, given the stability of the Dutch market and the company’s cost-conscious culture. Operating expenses only grew 1.9% year over year, which we consider a success in the current inflationary environment. Personnel expenses were down by 6.2%. On the energy front KPN was not very specific about its guidance, but indicated it still expects slight growth in EBITDAaL during 2023 even if high energy prices persist. The company will distribute a dividend of EUR 0.143 per share for fiscal 2022, which at current prices represents a 5.3% yield. We recommend KPN to dividend investors looking for an attractive, but maintainable dividend yield. We are maintaining our EUR 2.80 fair value estimate.

KPN's second-quarter results were stable as usual, with organic service revenue growth of 1.4% and EBITDA growth (after leases) of 1.1%. In the consumer segment, service revenue declined 1.1% as growth in sales to the fiber base were not enough to offset declines in the copper base. The mobile segment grew 1.4% thanks to net customer additions of 33,000 and stable average revenue per user trends. Management raised its outlook slightly for 2022, from an expected EBITDAaL of EUR 2,350 million to EUR 2,400 million. KPN continues to do a good job of reducing its cost base despite inflationary pressures. Operating expenses increased by just 0.8% during the quarter, with wage inflation and higher energy costs offsetting other cost controls. We are confident in KPN’s ability to keep costs under control, as the company has shown very good cost discipline over more than a decade, resulting in significant margin expansion. Despite the cost of goods and services increasing 4.5% due to inflation, personnel and IT expenses declined by 4.5% and 5.3% respectively. We maintain our EUR 2.80 fair value estimate and view shares as overvalued currently.

KPN's first-quarter results showed modest revenue growth (1.6% organic) which, coupled with cost controls (minus 0.3% year over year), resulted in flattish EBITDA (after leases) margins at 45.3%. We believe KPN is well positioned to reach its 2022 guidance of EUR 2,400 million in EBITDA (EUR 593 million in the first quarter), although our forecast is slightly more conservative. We are maintaining our EUR 2.80 fair value estimate; at this point we see the shares as slightly overvalued, trading around EUR 3.20.

KPN is the incumbent telecom operator in the Netherlands, operating in both the fixed-line and mobile markets. It has maintained a stable market share during the past decade in broadband, where it shares leadership with peer VodafoneZiggo (40% each). We believe the Dutch broadband market to be a rational oligopoly where both players prefer not to engage in aggressive market share shifts but rather maintain stable positions, executing slight price increases each year. The mobile market, where KPN enjoys a 20% share, has three major operators (KPN, VodafoneZiggo, and T-Mobile Netherlands) and has recently been more competitive than broadband, as T-Mobile has been gaining share for several years by offering lower prices and more flexible terms.

Narrow-moat KPN closed 2021 on a good note, achieving its financial guidance and confirming its 2022 and 2023 outlook. Revenue grew by 0.3% organically during the fourth quarter while EBITDA (after leases) grew by 4.1% due to continued cost-cutting. Although we remain slightly more conservative than management’s guidance on the margin front, we're adjusting our 2022 and 2023 margin forecasts to reflect slightly higher cost cuts, which results in an increase in our fair value estimate to EUR 2.80 from EUR 2.70 on the local shares. Our ADR fair value estimate is reduced to USD 3.20 from USD 3.30 as our margin adjustments are offset by the recent appreciation in the U.S. dollar. We believe KPN is an attractive firm inside the challenged European telecom sector as it operates in a rational and stable broadband market with high market share (40%) and in a mobile market with only three operators, which tend to be more stable from a pricing perspective. Fully privatized, KPN has freedom to streamline its cost base, where it has reduced full-time employees from 12,400 in 2018 to 9,700 in 2021. We believe KPN still has room for cost-cutting, especially in its business segment, which has more employees than the consumer division but 35% less revenue.

KPN is the incumbent telecom operator in the Netherlands, operating in both the fixed-line and mobile markets. It has maintained a stable market share during the past decade in broadband, where it shares leadership with peer VodafoneZiggo (40% each). We believe the Dutch broadband market to be a rational oligopoly where both players prefer not to engage in aggressive market share shifts but rather maintain stable positions, executing slight price increases each year. The mobile market, where KPN enjoys a 20% share, has three major operators (KPN, VodafoneZiggo, and T-Mobile Netherlands) and has recently been more competitive than broadband, as T-Mobile has been gaining share for several years by offering lower prices and more flexible terms.

There were no surprises in narrow-moat KPN’s third-quarter results. Service revenue grew by 0.7% year over year while EBITDA after leases grew 0.3% thanks to cost controls and lower lease expenses. Although operating expenses grew 1.1% this is explained by very strong cost-cutting in third-quarter 2020, which affected comparability. Overall, we are pleased with KPN’s focus on cost controls, being one of the most ambitious European operators on this front, which results in it having leading EBITDA margins and stable cash flow generation. We are maintaining our EUR 2.70 fair value estimate.

KPN is the incumbent telecom operator in the Netherlands, operating in both the fixed-line and mobile markets. It has maintained a stable market share during the past decade in broadband, where it shares leadership with peer VodafoneZiggo (40% each). We believe the Dutch broadband market to be a rational oligopoly where both players prefer not to engage in aggressive market share shifts but rather maintain stable positions, executing slight price increases each year. The mobile market, where KPN enjoys a 20% share, has three major operators (KPN, VodafoneZiggo, and T-Mobile Netherlands) and has recently been more competitive than broadband, as T-Mobile has been gaining share for several years by offering lower prices and more flexible terms.