Proximus Posts an Earnings Surprise in 3Q; We Believe Shares Have Been Overly Penalized

Narrow-moat Proximus surprised investors with better than expected earnings in the third quarter, with overall revenue growing by 7.8%. On the one hand, the domestic Belgian business performed well, with the residential and enterprise segments growing sales by 3.0% and 3.7%, respectively, thanks to the price increases introduced in May 2022. On the other hand, BICS revenue grew by 16.4% during the quarter, although this increase seems to be seasonal thanks to the travel summer season. (BICS routes voice and data communications between different networks internationally.) However, revenue growth did not translate into EBITDA growth (only 0.6% growth), as the company's cost base has been affected by inflationary pressures, mainly because of wage indexation. The company has put in place cost-savings measures to mitigate any impacts. We also feel comfortable seeing that Proximus has fully hedged energy prices for 2022 and 90% hedged them for 2023, as some telecommunication companies in our coverage have recently seen headwinds coming from energy. We are maintaining our EUR 18 fair value estimate.