Telenor To Be Impacted by Rising Energy Costs; Trimming FVE to NOK 130

Telenor performed well on the sales side during the third quarter, with revenue in all the Nordic regions growing by midsingle digits (Norway 3%, Sweden 6%, Denmark 7%, and Finland 5%) thanks to average revenue per user, or ARPU, increases in all geographies and slight customer additions. However, Telenor’s EBITDA remains pressured due to increasing energy prices, a narrative we have already heard from other operators like Telia this quarter. EBITDA managed to grow by 2.5% but this was mainly due to a one-off effect, which offset the cost pressures from higher energy costs. Management estimates the effect of energy prices in full-year EBITDA will be around 300 basis points. We are trimming our fair value estimate by 11% to NOK 130 per share from NOK 147 to account for lower EBITDA margins in 2022 and 2023 coming from inflationary cost pressures and a slow but steady recovery from then onwards. We believe the energy situation adds further uncertainty to Telenor’s EBITDA. We remind we grant a High Uncertainty Rating to Telenor mainly coming from its Asian operations, which have currency volatility risk and political risk involved.