KPN Earnings: Raising Fair Value Estimate; Keeps Outperforming Peer VodafoneZiggo

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.