EUR 850.00 For Business Accounts Only

Morningstar | Proximus Reported Mixed First-Quarter Results; Shares Fairly Valued

Proximus reported mixed first-quarter results with weak revenue but improved EBITDA margins. We expect these items to mostly offset each other and thus don’t expect any significant changes to our EUR 26 per share fair value estimate or narrow moat rating. We believe the shares are fairly valued.

The company reported revenue fell 1.8% year over year versus our full-year projection of slight revenue growth. However, about half of the revenue decline was from much lower revenue from handsets, which carry very low margins. Thus, the reduced revenue helped the firm’s EBITDA margin. Consumer revenue declined 3.1% as the firm's prepaid wireless subscriber base fell 15.5% to 735,000. This drop was more than could be offset by the postpaid customer gains of 2.8% to 2.7 million. Importantly, though, Proximus continues to push its convergence service, which allowed its quad-play customer base of fixed-line and wireless telephony, broadband, and pay TV services to reach 737,000 subscribers and pushed average revenue per household up 1.2% to EUR 66.70. While we are a bit disappointed that prepaid wireless subscribers dropped faster than postpaid gained, we expect revenue to be more stable for the rest of the year.

On the smaller enterprise side, Proximus’ revenue grew 1.6% from the year-ago period as its information and communications technology division grew 6.7%. The segment also grew its postpaid wireless base 4.9% to 1.05 million, though this growth was partially offset by lower average revenue per user. However, these growth areas were sufficient to offset continued declines in traditional fixed-line telephone service.

The firm continues to work on controlling costs, which, along with the lower handset sales, allowed its adjusted EBITDA margin excluding leases to reach 32.7% versus our full-year projection of 32.2%. We believe Proximus has room for additional cost-cutting over time.