Morningstar | Swisscom Reports Slightly Better 1Q Results; Shares Fairly Valued
Swisscom reported first-quarter results that were a bit ahead of our expectations, but we don’t expect to make any significant changes to our CHF 470 per share fair value estimate or narrow moat rating. We believe the shares are fairly valued.The firm reported that revenue fell 0.9% year over year versus our full-year projection of a decline of 1.6%. However, even with our larger expected revenue decline, our full-year revenue projection exceeds management guidance of CHF 11.4 billion, which means Swisscom expects either even worse declines in the next three quarters, a strengthening of the Swiss franc versus the euro, which would cause Fastweb’s results to be worth less when converted into francs, or is lowballing expectations. For now, we don’t see any reason to change our projections.
In Switzerland, the firm’s revenue fell 1.9%, as the weakness in traditional fixed-line telecom continues. Swisscom’s fixed-line subscriber base dropped 12.1% to 1.7 million. Fixed-line subscriber losses have been occurring for years and will likely continue for several more. However, we were a bit surprised to see a 1.1% loss in its wireless subscriber base to 6.4 million. We have been impressed for a long time with Swisscom’s ability to maintain its wireless market share despite increased competition. Thus, we will be watching this area closely.
In Italy, Fastweb continues to perform nicely, with broadband subscriber growth of 3.7% from the year-ago period to 2.6 million, and its wireless customer base jumping 28% to 1.5 million. We expect this division to continue to grow revenue, but not enough this year to offset projected revenue declines in Switzerland.
Swisscom is also working on controlling costs, which led to an adjusted EBITDA margin, excluding leases, of 37%. While this is ahead of our full-year projection of 35.7%, the fourth quarter is historically much lower than the other three, so the first three quarters need to be well above our full-year projection.
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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