Proximus Delivers in Q2; Trimming FVE to EUR 18 After Entrance of Fourth Mobile Player in Belgium

Narrow-moat Proximus' results didn’t bring big surprises, and the company expects to end the year in the higher part of its guided range, with 1% to 2% growth in revenue and 1% growth in EBITDA. Like other telecoms this quarter, revenue growth did not translate into EBITDA growth due to inflationary pressures in the cost base, with a 4.9% growth in revenue just translating into a 0.9% growth in EBITDA. In the last quarter, Proximus also closed the acquisition of spectrum rights in Belgium for EUR 600 million. The latest spectrum auction has resulted in the entrance of a fourth mobile operator in Belgium, a joint venture between Citymesh and Digi, that will rollout a network over the next few years. Digi is known for implementing aggressive competitive policies in the markets where it operates (Spain, Italy, and Portugal), and has already indicated it plans to “reshape the playing field in the Belgian telecommunications landscape.” We are trimming our fair value estimate to EUR 18 from EUR 20 to account for lower mobile revenue growth and margin assumptions long term as the new entrant introduces cheaper mobile plans. History has shown us the entrance of fourth operators results in unhealthier market environments, like we have seen in France, Spain, and Italy in the past decade. Despite the fair value estimate reduction, we believe Proximus’ shares are too punished. Proximus currently trades at a 4.3 times enterprise value to EBITDA multiple, which is in the low part of the range of European telecom operators. The new EUR 18 fair value estimate represents a 33% upside.