EUR 850.00 For Business Accounts Only

Morningstar | Koninklijke KPN Reports Mixed First-Quarter Results; Shares Fairly Valued

Koninklijke KPN reported mixed first-quarter results with weak revenue growth, offset by profitability that was stronger than we expect for the year. These deviations from our expectations during the quarter were modest and thus we don’t anticipate any significant changes to our EUR 3 per share fair value estimate. Our narrow moat rating is unchanged, and we believe the shares are fairly valued.

The firm reported revenue fell 2.9% year over year versus our full-year projection of a decline of 1.1%. KPN is making good progress on its convergence strategy, adding 61,000 converged fixed-line and postpaid wireless subscribers. About 59% of its postpaid base wireless customer base now takes fixed-line services, as well. However, consumer wireless revenue fell 2.1%, with wireless service revenue down 4.6% primarily from lower average revenue per postpaid wireless customer. This decline more than offset a small revenue increase in KPN’s consumer fixed-line operation. While competition has been intense in the Netherlands, we anticipate pricing to stabilise with T-Mobile Netherlands acquiring Tele2 Netherlands, reducing the number of actual wireless networks from four to three. We also anticipate continued success with KPN’s converged offering, especially now that it is increasing the speed of its fiber to the home rollout, making its broadband speeds equal to or faster than VodafoneZiggo’s.

The business services unit is performing worse than the consumer business, with revenue falling 4.9%. We expect business services will continue to struggle due to increased competition in the Netherlands. Fortunately, KPN continues to do a nice job of controlling costs, with the EBITDA margin of 41.4% versus our full-year expectation of 41.1%.