Company Reports

Narrow-moat Proximus' first-quarter results were strong, pushing share prices higher with underlying domestic revenue up 4.5% (guidance of 1% growth for the full year) and underlying domestic EBITDA up 4.7 % (guidance of 1% growth). We are pleased with Proximus' performance on the revenue front, as it is able to pass price increases to customers with little impact on churn rates. Unlike a year ago where EBITDA growth was negative, energy costs and wage adjustments did not weigh on EBITDA in the quarter. Management reiterated its 2024 guidance but cautioned investors regarding the anticipated changes to the Belgium competitive landscape due to a fourth operator. We are maintaining our EUR 10.5 fair value estimate, and at a 4.4 times enterprise value to 2024 EBITDA multiple the stock looks cheap to us.

Proximus, the incumbent telecom operator in Belgium, shares broadband leadership with cable peer Telenet, with around 45% and 35% market share, respectively. We believe the Belgian broadband market to be a rational oligopoly where Telenet dominates in the north of the country (Flanders) and Proximus in the south (Wallonia), with the capital Brussels being a more competitive area, given its high density. Proximus has a fixed network presence across the entire country, while Telenet and Voo (another cable operator, acquired by Orange in 2022) operate only in Flanders and Wallonia, respectively.

There was little news in narrow-moat Proximus’ fourth-quarter 2023 results as the company held its capital markets day one month ago. Revenue fell by 1.8% in fourth-quarter 2023 largely due to its weaker international BICS and Telesign divisions, which fell 17.7% and 15.8%, respectively. Losses were offset by growth in the core Belgium telecom business, which grew by 3.5%. Proximus' EBITDA grew 1.4% in the quarter due to higher direct margins on improved efficiencies and inflation deceleration.

We are reducing our fair value estimate for Proximus to EUR 11 per share from EUR 14 after making more-conservative medium- and long-term revenue and EBITDA forecasts. We expect competition in the Belgian market to heat up with the entrance of Digi, which is known for its aggressive behavior in Spain, Romania, and Italy. We also expect more competitive pressure in broadband coming from Orange in the southern part of Belgium, Wallonia. Proximus' main competitor there, Voo, has historically been underfunded, but with its acquisition by Orange, we expect it will step up investments and try to win market share. We now assume slight annual revenue declines for Proximus, compared with slight increases previously, and margin pressure. Our terminal-year EBITDA margin stands now at 29% compared with 30.3% previously. Our narrow moat rating is unchanged, as we estimate Proximus will still generate returns on invested capital above its cost of capital, although the gap between the metrics is now smaller.

Proximus, the incumbent telecom operator in Belgium, shares broadband leadership with cable peer Telenet, with around 45% and 35% market share, respectively. We believe the Belgian broadband market to be a rational oligopoly where Telenet dominates in the north of the country (Flanders) and Proximus in the south (Wallonia), with the capital Brussels being a more competitive area, given its high density. Proximus has a fixed network presence across the entire country, while Telenet and Voo (another cable operator, acquired by Orange in 2022) operate only in Flanders and Wallonia, respectively.

Proximus raised its 2023 guidance for domestic revenue and domestic and group EBITDA following a strong quarter for the company, sending the stock up 3% on the day. While Proximus' underlying group revenue only increased by 1.1% year over year organically in the third quarter, domestic revenue increased 4.3% to EUR 1.2 billion thanks to strong performance in the residential and business segments. Management raised domestic revenue growth expectations to between 3.5% and 4.0% from 1.0% and 3.0%. We are maintaining our EUR 14 fair value estimate.

Proximus´ underlying group revenue increased by 4.0% year on year organically in the second quarter, reaching EUR 1.5 billion driven by good performance both domestically and internationally. Management commented that the market overall remains competitive, with competitors still doing promotional activities and the inflationary environment favoring price-seeking brands. Despite revenue growth, Proximus saw underlying EBITDA going down 3.7% year over year (EUR 446 million) as inflation is biting into the company´s profits. Higher costs came from higher electricity costs and cumulative wage indexations. Management expects wage indexation to soften during the second half of the year. Financial guidance of 1% to 3% growth in domestic revenue and a 3% EBITDA decline was unchanged. We are maintaining our fair value estimate of EUR 14 per share. We are aware of the medium-term uncertainty Proximus faces, with the entrant of Digi as a fourth mobile operator, however, we believe the market is pricing in an overly pessimistic scenario in the shares. Our forecasts already assume long-term mid-single-digit pressures in the mobile market and limited margins expansion. Still, we plan to revisit our forecasts soon.

Narrow-moat Proximus first-quarter results were aligned with management's 2023 guidance, with underlying domestic revenue up 4.8% (guidance of 1% to 3% growth for the full year) and underlying domestic EBITDA down by 3.4% (guidance of a 3% decline). We are pleased with Proximus' performance on the revenue front, as it is being able to pass price increases to customers with little impact on churn rates. EBITDA pressures mainly come from wage indexation (Proximus has done several inflation wage adjustments in the past 12 months) and energy costs. We are maintaining our EUR 14 fair value estimate, with our 2023 forecast aligned with management guidance.

There were no new developments in narrow-moat Proximus' fourth-quarter results, as the company already held its capital markets day one month ago. Revenue grew by 8.4% in the fourth quarter mainly because of BICS and Telesign divisions, which grew 20.4% and 60.5%, respectively. The core Belgian telecom business grew by 2.1%, and group EBITDA was 1.4% higher. Management met its outlook for full-year 2022 and has guided for a revenue increase of 1% to 3% in the core telecom business in 2023 and an EBITDA decline of 3% caused by the inflationary effects on wages. Although we recently reduced our fair value estimate to EUR 14.00 from EUR 18.00 per share, we believe Proximus shares have been overly punished and offer a 50% upside. As of today, Proximus shares are trading at a 3.5 times enterprise value to EBITDA multiple, lower than other European telecoms with exposure to more competitive and pressured markets.

Narrow-moat Proximus cut its dividend in half from 2024 onward under its new midterm strategic plan. From 2024 shareholders will be entitled to a EUR 0.60 dividend per share compared with EUR 1.20 previously. The 2023 dividend will be maintained at EUR 1.20 per share. Although management found nice words to justify the dividend reduction, the reality is free cash flow generation did not cover Proximus’ dividend. We have long said that Proximus’ shareholder remuneration policy is weak, with dividends being partially financed by debt and not maintainable over the long term. The new dividend level is more realistic and covered by free cash flow, although it still leaves very little room for debt reduction.

Proximus, the incumbent telecom operator in Belgium, has maintained stable broadband market share during the past decade, where it shares leadership with cable peer Telenet (45% and 35% market share, respectively). We believe the Belgian broadband market to be a rational oligopoly where Telenet dominates in the north of the country (Flanders) and Proximus in the south (Wallonia), with the capital Brussels being more competitive. Proximus has a fixed network presence across the entire country, while Telenet and Voo (another cable operator, acquired by Orange in 2022) operate in Flanders and Wallonia, respectively.

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.

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.

Proximus, the incumbent telecom operator in Belgium, has maintained stable broadband market share during the past decade, where it shares leadership with cable peer Telenet (45% and 35% market share, respectively). We believe the Belgian broadband market to be a rational oligopoly, where Telenet dominates in the north of the country (Flanders) and Proximus in the south (Wallonia), with the capital Brussels being more competitive. Proximus has a fixed network presence across the entire country, while Telenet and Voo (another cable operator, in negotiations to be acquired by Orange) operate in Flanders and Wallonia, respectively.

Proximus, the incumbent telecom operator in Belgium, has maintained stable broadband market share during the past decade, where it shares leadership with cable peer Telenet (45% and 35% market share, respectively). We believe the Belgian broadband market to be a rational oligopoly, where Telenet dominates in the north of the country (Flanders) and Proximus in the south (Wallonia), with the capital Brussels being more competitive. Proximus has a fixed network presence across the entire country, while Telenet and Voo (another cable operator, which in 2021 was acquired by Orange) operate in Flanders and Wallonia, respectively.

We were pleased with narrow-moat Proximus' first-quarter results, which showed the usual stability in the Belgian market. Market share remained stable with Proximus adding 11,000 and 24,000 net customers to its broadband and mobile offerings, respectively. Sales growth of 2.7% (0.7% organically) was not translated into EBITDA growth (0.3% organically) due to inflationary cost increases and higher operating expenses. However, we expect Proximus will be able to defend itself from inflationary pressures as Belgium is a rational market where customers are willing to accept price increases. Proximus, Orange and Voo (to be acquired by Orange) have already announced price increases in most of their offerings, which should help offset any wage or energy price increases. We are maintaining our EUR 20 fair value estimate.

Narrow-moat Proximus' fourth-quarter results highlighted the good commercial momentum the company is enjoying, with market share gains in broadband, TV and mobile, adding 14,000, 13,000, and 37,000 consumer subscribers respectively, compared with last quarter. This trend, coupled with the usual price stability in Belgium, is resulting in good sales performance, with sales up 2.8% year over year on an organic basis. Although growth did not result in EBITDA growth (3.8% down in the quarter) due to inflation, employee benefit costs and customer acquisition costs, management expects a positive trend in 2022 due to cost controls, with EBITDA expected to decline 1% in 2022 compared with the 3.5% decline seen this year. We maintain our EUR 20.00 fair value estimate.

Narrow-moat Proximus has announced its intention to launch an IPO for Telesign, its division engaged in programmable communications like two-factor authentication text messages or payment reminders, among other things. The shares will be listed on the Nasdaq and the IPO will be done via a special-purpose acquisition company, or SPAC, merger with North Atlantic Acquisition Company, or NAAC, a shell company that was looking for a business combination. Management estimates enterprise value will be around USD 1.3 billion, representing a 3.3 times EV/revenue (2021) multiple, in line with that of Swedish peer Sinch, which trades at a 3 times multiple but lower than those of peers Twilio or Okta in the U.S., which trade at double-digit multiples explained by higher growth prospects. Proximus shares are almost up 4% at the time of the writing. We maintain our fair value estimate of EUR 20 per share.

Orange announced it has entered into exclusive negotiations to acquire 75% of cable operator Voo in Belgium, based on an enterprise value of EUR 1.8 billion. The decision comes after Voo held conversations with 27 bidders. The acquisition price implies a 9.5 times enterprise value/EBITDA multiple before synergies (no indications on synergies have yet been provided), which we see as slightly high compared with other cable peers. We maintain our fair value estimate and no moat rating for Orange.

Proximus' third-quarter results came with no big surprises, although the weakest performance came from its domestic retail operations in Belgium, which saw revenue decline by 2.1% organically. We believe this is the reason why shares have slipped around 3% at the time of the writing. The company is on track to meet its 2021 guidance and expects EBITDA to be in the midpart to high part of the guided range (EUR 1,750 million-1,775 million). We are maintaining our EUR 20 fair value estimate.