Telenor Earnings: Service Revenue Up 4% and EBITDA Up 1%; Maintaining Fair Value Estimate

Narrow-moat Telenor TEL reported service revenue of NOK 15.8 billion in the third quarter, a 4% organic increase year over year, outperforming expectations. The service revenue increase was driven by price increases in all markets except Denmark and subscriber growth in all markets except Norway. We believe Telenor has capacity to increase prices without losing subscribers, especially in Norway, where it is the incumbent with very high market share. In the Asian market, service revenue increased 3%, primarily attributed to increased data usage and price adjustments in Grameenphone. EBITDA increased 1.5% on an organic basis to NOK 9.3 billion but saw margins decline to 46.0% margin from 47.5% a year ago. Telenor provided additional clarity on its 2023 outlook. Nordic Service revenue and EBITDA are expected to be above 3% from an original forecast of low to midsingle digits. Group capital expenditures for the quarter fell to NOK 2.7 billion compared with last quarter’s NOK 3.4 billion. Management also confirmed capital expenditures will be 17% of sales in 2023. We are maintaining our NOK 130 fair value estimate.

All Nordic geographies increased service revenue nicely with Sweden and Finland as the standouts at 4% and 7% organic growth, respectively. Norway, Telenor´s largest division, increased service revenue by 3% organically with EBITDA increasing 8%. In Asia, Pakistan was the standout falling 8% year over year, the result of a reversal of a provision of NOK 0.5 billion. Telenor did start to realize some synergies in Thailand as True Corporation and CelcomDigi began to integrate, helping offset the loss.

Telenor’s tower business service revenue decreased by 17% organically. This was, however, explained by lower energy spot prices, which are built into Telenor’s contracts. Co-location revenue (excluding energy) went up by 10%.