Morningstar | Swisscom Reports Generally In-Line 2Q Results; Maintaining FVE, Shares Fairly Valued
Swisscom reported generally in-line second-quarter results, and we are maintaining our CHF 470 fair value estimate and narrow moat rating. We believe the shares are fairly valued. The firm reported revenue grew 2% year over year versus our full-year projection of a 0.5% decline. However, the gain was all currency related, and on an organic basis, revenue declined slightly. In the company's core Swiss market, telecom revenue fell 3.1%. This decline was primarily driven by a 13.7% drop in fixed-line customers to 1.9 million. This more than offset a 2.1% increase in the retail broadband subscriber base to 2 million and a 3.7% gain in pay-television customers to 1.5 million. The firm’s wireless subscriber base increased slightly as postpaid customer gains more than offset prepaid declines. Importantly, its converged offering continues to grow and now has 1.9 million customers. We expect convergence will allow Swisscom to continue to expand its wireless, broadband, and pay-TV bases and slow the losses in fixed line. We also expect it to eventually lead to increases in average revenue per user.The firm’s other Swiss operations were basically flat year over year on a combined basis, with solutions and other revenue down and merchandise and wholesale up. In Italy, Fastweb increased revenue 10.7%, with about half of this from currency gains. The division increased its broadband subscriber base 3.7% to 2.5 million and its wireless customer base 45.5% to 1.3 million. Despite increased competition in Italy, Fastweb is performing well. We expect this to continue despite Iliad’s entrance into the wireless business.
Swisscom continues to work on cost control and generated an adjusted EBITDA margin of 37.2% versus our full-year projection of 36.6%. However, the fourth quarter is historically weaker than the rest of the year, so we believe our projection will end up being close to the final result.
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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