EUR 850.00 For Business Accounts Only

Morningstar | Koninklijke KPN Reports 2Q Results Above Expectations; Shares Slightly Undervalued

Narrow-moat KPN met revenue expectations and surpassed EBITDA ones in its second-quarter results, with a 3.1% year-over-year reported revenue decline and a 3.6% adjusted EBITDA increase. EBITDA margin improved close to 300 basis points year over year, with revenue declines more than offset by cost-saving initiatives such as reductions in personnel and IT expenses, and the closure of Telfort’s stores. We maintain our EUR 3 fair value estimate for the local shares and USD 3.40 for ADRs.

In the consumer division, converged postpaid customer base, which was positively affected by the integration of subsidiary Telfort, saw continued progress with 104,000 new additions (50,000 excluding Telfort) and now represents 62% of total postpaid customers. Consumer revenue was down 2.1%, driven by a 5.8% decline in mobile services because of a lower average revenue per user. This was partially offset by a 6% increase in fixed-line revenue per user. Telfort’s integration is in line with KPN’s strategy of phasing out secondary brands and integrating them under KPN’s brand.

In the business services division, revenue was down 5.5%, with sharp declines in fixed-voice and mobile service. We believe the intense competitive environment in the Netherlands is affecting this business unit, although pricing pressure should soften after the acquisition of Tele2 Netherlands by T-Mobile. The migration of enterprise customers from legacy systems continued during the quarter.

Additionally, the company completed the sale of its remaining shares in Telefonica Deutschland.