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Morningstar | Telenor Reported Mixed First-Quarter Results; Shares Fairly Valued

Telenor reported mixed first-quarter results with stronger revenue growth but weaker EBITDA margins. However, we don’t anticipate any significant changes to our NOK 164 per local share fair value estimate and narrow moat rating. We believe the shares are fairly valued. The firm reported revenue growth of 1.8% year over year versus our full-year projection of a 0.1% decline.

In its home market of Norway, Telenor is having success with its fiber service, which added 11,000 customers in the quarter, as well as growing its average revenue per user, or ARPU, by 2%. While it lost 28,000 wireless subscribers, this was offset by a 2% ARPU gain. However, total revenue in the country fell 1% as traditional fixed-line telephone service dropped 17%, which more than offset revenue growth elsewhere.

The firm’s main countries for revenue growth remain Bangladesh and Pakistan, which we expect will continue. In Bangladesh revenue jumped 20.9% year over year as Telenor’s wireless subscriber base increased 9.8% to 74.1 million, and its ARPU improved 3%. We have expected that increased data usage would eventually lead to improving ARPU, but haven’t seen it occur very often, so we are pleased to see subscriber growth and higher APRU. In Pakistan, the wireless customer base increased 4% to 44.3 million, and ARPU grew 10% in local currency terms but declined when converted into Norwegian krone.

While Bangladesh, Pakistan, and Denmark saw improved EBITDA margins, most other countries saw a decline. The largest drop occurred in Thailand, where the conversion of the wireless telephone system from a concession to a traditional style continues to plague the business and pushed EBITDA down 26%. Due to the problems in Thailand, Telenor’s total EBITDA declined 3.5% on an organic basis, which pushed EBITDA margin down to 40.3% versus our full-year projection of 41.5%. However, excluding Thailand, the firm’s EBITDA would have increased 1.9%.

We were pleased to see Telenor add 1.2 million wireless subscribers in Myanmar during the quarter. The Myanmar operation had a horrible 2018, and we expected it would take some time to recover. While the subscriber base is still lower than one year ago, the recovery appears to be happening sooner than we anticipated.