Morningstar | Proximus Reported Mixed 3Q Results With Weak Revenue, but Solid Margins; Shares Undervalued
Proximus reported mixed third-quarter results with revenue a bit weak, but better margins. We expect to maintain our EUR 28 per share fair value estimate and narrow moat rating. We believe the shares are undervalued. The firm reported revenue growth of 0.1% year over year in the quarter versus our full-year projection of 0.8%. That 0.8% figure is spot-on with Proximus’ nine-month result.We were disappointed with consumer revenue that declined 1.8% after being positive in the first half. However, the biggest chunk of the decline was from lower handset sales, which carry minimal margin, and other income. Thus, we believe the core consumer business can generate better revenue growth next year. Proximus continues to grow its pay TV, mobile postpaid, and convergent bases. In total it grew its quad play base by 7.2%, which now accounts for about one third of its consumer revenue. As the firm continues to push quad play services, we believe it can grow revenue and further stabilize its subscriber base as quad play customers have significantly lower churn rates.
We continue to be pleased with the firm’s enterprise business, which increased revenue 2.2%. This was led by a 6.8% gain from its information communications and technology business and a 28.6% jump from advanced business services. Proximus has made some small acquisitions in these areas, which have provided it a greater ability to sell value added services, which have resonated well with its customer base. The firm’s international carrier services, or BICS, division is also doing well thanks to acquiring TeleSign, which has pushed its revenue up 3.1%.
Proximus is also working hard to control costs and it generated an EBITDA margin of 32.6% during the quarter ahead of our full year projection of 31.7%. Management also increased its EBITDA margin guidance to a gain two to three percentage points from 2017’s result, up from a slight gain previously.
Proximus supplies integrated telecommunications services on the Belgian market. Co.'s activities are divided into four segments: Consumer Business Unit (CBU), which sells voice products and services, internet and television, on fixed and mobile networks, to residential customers; Enterprise Business Unit (EBU), which caters to professional customers; Service Delivery Engine and Wholesale, which centralizes all the network and IT services and costs, provides services to CBU and EBU and sells these services to other telecom and cable operators; and International Carrier Services, which focuses on international carrier activities.
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