Deutsche Telekom Earnings: Steady Performance in Revenue and EBITDA; Shares Offer 30% Upside

Narrow-moat Deutsche Telekom DTE, or DT, recorded another consecutive quarter of EBITDA after leases, or EBITDAal, growth thanks to steady performance across all its portfolio and cost controls. Group services increased by 2.9% organically, which translated into adjusted EBITDaL growth of 2.4% during the first half of the year. DT is compensating raises in salary and energy costs with personnel reductions and other cost efficiencies, having reduced its headcount by 2.6% year over year to 205,000 employees. We maintain our EUR 25 fair value estimate with shares offering a 30% upside for patient investors. Deutsche Telekom remains one of our preferred European telecommunication stocks given its Exceptional capital allocation rating and exposure to stable markets with healthy pricing and competitive trends. We also expect Deutsche Telekom to keep increasing its dividends at steady midsingle digits in the coming years.

In the U.S., adjusted EBITDaL grew by 3% thanks to increases in revenue, headcount reductions, and ongoing synergies from the merger with Sprint. Germany saw this same growth rate also due to headcount reductions and upselling. Solid financial performance is also resulting in deleveraging, with net debt/EBITDA before leases standing at 2.94 times at the end of this quarter compared with 3.28 times one year ago. We estimate it could take around one year to organically reach the upper range of the leverage range.