Increasing KPN's FVE to EUR 2.80 to Reflect Slightly Higher Cost Cuts; Stable Fourth Quarter

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.