Company Reports

We will discontinue analyst coverage of Proximus on or about April 3.

An earlier version of this note said we were discontinuing analyst coverage of Proximus. However, the company is still under coverage.

The Morningstar Developed Markets Europe Communication Services Index has returned 23.7% year to date, thanks to renewed hopes for consolidation and modestly improving conditions in markets like Italy.

Proximus’ third quarter resembled what we saw in June. While the domestic telecom business keeps performing well, with EBITDA expected to close up 2% this year, the global division is facing meaningful top-line pressures.

Proximus downgraded its outlook for the global division after a sharp slowdown in the communications platform as a service SMS segment, where revenue fell 16% organically this quarter. Shares dropped 9% during July 25 trading—a move we view as justified.

Proximus, the incumbent telecom operator in Belgium, shares broadband leadership with cable peer Telenet, with around 45% and 35% market share, respectively. The Belgian broadband market is concentrated, with Telenet dominating in the north of the country (Flanders) and Proximus in the south (Wallonia). The capital Brussels is 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.

We are updating our moat ratings for eight European telecom stocks. European telecom companies lack the scale and pricing of international peers. Network redundancies and little cross-border synergies are common, and the regulatory landscape is not supportive of competitive advantages.

Proximus, the incumbent telecom operator in Belgium, shares broadband leadership with cable peer Telenet, with around 45% and 35% market share, respectively. The Belgian broadband market is concentrated, with Telenet dominating in the north of the country (Flanders) and Proximus in the south (Wallonia). The capital Brussels is 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' first-quarter results were satisfactory, with revenue of EUR 1.64 billion and EBITDA of EUR 481 million, up 1.5% and 2.8% on an organic basis, respectively. Both numbers were above company-compiled consensus.

Narrow-moat Proximus reported better-than-expected fourth-quarter 2024 group results, though much of the positive surprise came from Proximus’ international operations. Domestic revenue growth of 3.2% came in ahead of company-compiled consensus, but flat underlying domestic EBITDA of EUR 392 million fell slightly short. Group-level figures reached the top end of management's 2024 guidance, which was raised at third-quarter results. Convergent additions, broadband net additions, and postpaid mobile lines all came in modestly ahead of company-compiled consensus, allaying investors' immediate fears over the entry of Digi, an ultracompetitive operator. Digi also reported results on Feb. 28, but gave no customer numbers for Belgium because, so far, it has not attracted a sizable subscriber base. Proximus' results, along with the initial outlook for 2025, appear to be well received, with shares up some 5% intraday. We maintain our EUR 9.20 fair value estimate.

Narrow-moat Proximus reported pro forma third-quarter underlying domestic revenue growth of 3.5% and underlying domestic EBITDA growth of 3.7%, ahead of guidance for both metrics. Management raised its 2024 guidance for both, from 2.5% to 3% and from 2% to 3%, respectively. They also raised guidance for underlying group EBITDA from 2.5% to 3%. While these results have been well received in the short term, Proximus’ medium-term outlook is uncertain as the entry of Digi approaches, which aims to take 10% market share in Belgium. Still, shares look undervalued, trading at a 3.7 times enterprise value/EBITDA and we maintain our EUR 9.20 fair value estimate.

While narrow-moat Proximus reported in-line second-quarter results, the announcement that they intend to acquire the 50% remaining stake from fiber network Fiberklaar was not well received by the market. We estimate Proximus is overpaying for this asset compared with similar fiber transactions, which has likely triggered the 9% selloff in shares. The consolidation of Fiberklaar will also result in increased capital expenditure in the medium term and net debt/EBITDA of 3.1 times, compared with 2.7 previously, which increases risks even more as we await the entrance of Digi in the Belgian market. We reduce our fair value estimate to EUR 9.20 per share from EUR 10.50 as we account for the acquisition, including the higher capital expenditure required in the medium term to support the network buildout.

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.

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.