Morningstar | Swisscom Reported In-Line 3Q Results, with Fastweb Providing Growth; Shares Fairly Valued
Swisscom reported third-quarter results that were roughly in line with our expectations and we expect to maintain our CHF 470 per share fair value estimate and narrow moat rating. We believe the shares are fairly valued. The firm’s reported revenue declined 1% year over year, but is up 1% for the nine month period due to positive currency movements. Excluding currency movements, revenue declined 0.1% for the nine-month period versus our full-year projection of a decline of 0.5%.In Switzerland, the core phone business declined 2.6% in the third quarter. The telecom market has become quite saturated and the firm’s wireless subscriber base was basically flat with some contract subscriber gains offset by prepaid customer losses. Importantly, Swisscom’s market share impressively remains around 60%. The fixed-line base shrank 13.3% to 1.85 million as people continue to cut the cord. Swisscom’s converged product, inOne, continues to do well gaining 779,000 subscribers in the nine month period and now totals 2.1 million. This has led to subscriber gains in both broadband and pay TV. We are pleased with the core business, but expect continued declines in the fixed-line segment will keep overall revenue slightly negative this year and next.
Swisscom’s revenue growth is primarily being driven by its Fastweb subsidiary in Italy. Despite increased competition in Italy, the business continues to perform well with 4% subscriber growth in its core broadband service to 2.5 million. Its relatively new wireless service continues to grow like gangbusters, jumping another 33.9% to 1.3 million. The firm is increasingly pushing the services together into a converged product. We believe this will enhance both businesses.
The firm continues to control costs and generated an EBITDA margin of 37.2% in the quarter versus our full-year projection of 36.3%. However, the fourth quarter historically has lower margins, so we anticipate the full year being closer to our estimate.
Swisscom is engaged in providing telecommunication services and is active in Switzerland and Italy. Co. has three operating divisions: Swisscom Switzerland, Fastweb; and Other Operating Segments. Co.'s Swisscom Switzerland divisions comprised of: Residential Customers; Small and Medium-Sized Enterprises; Enterprise Customers; Wholesale; and IT, Network & Innovation. Co.'s Fastweb segment supplies its fixed-network both directly via its own fiber-optic network and also via the unbundled fixed-access lines and wholesale products. Co.'s other operating segments provides ICT solutions for physicians, hospitals and insurers, develops and operates intelligent solutions for energy management.
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