Euskaltel: Seeing beyond the short term
Following the initial good results in Navarra, Euskaltel (EKT) seems to have entered a new region - Cantabria. The expansion plan, even if not game changing for EKT (3.8% of 2022E revenues and EBITDA), should boost growth and more than offset the customer losses in legacy ops in 2017 by contributing more than 50k subs by 2022E. Moreover in 1H18 we saw a return to growth in EKT legacy ops, with the adoption of more competitive pricing, key to correcting some of the commercial slipups of 2017. Q3 might look more challenging due to the ‘football dispute’, but that should not be representative of the medium-term competitive dynamics, thus Q4 should mark a return to a more normalized market. Our FV drops from €9.5 to €9.2, mostly due to the high value customer losses in legacy regions, but we reiterate our BUY recommendation on the shares at a time when they look to have been overly penalized by a momentary spike in promotional activity in Spain.Euskaltel SA is a Spain-based company engaged in the provision of integrated telecommunication services. The Company's activities are divided into three segments: Residential, Business, as well as Wholesale and Other. The Residential segment provides fixed and mobile telecommunication services, broadband and wireless Internet, as well as digital television (TV) as a single service and in packages. The Business division primarily offers fixed and mobile telephony, as well as Internet access for enterprises. The Wholesale and Other area serves wholesale customers and is responsible for the delivery of communication services, such as infrastructure leasing, information technology (IT) outsourcing, as well as sell of installation material and electronics. The Company operates in the Basque Country, Spain.
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