Morningstar | Telenor Reported Mixed Q4 Results With Revenue a Bit Light, but Strong Margins; Shares Fairly Valued
Telenor’s fourth-quarter revenue was a bit light of our expectations, but EBITDA margins were a bit better. Thus, we expect to maintain our NOK 164 per local share fair value estimate and narrow moat rating. We believe the shares are fairly valued. While the firm’s full-year reported revenue of NOK 110.4 billion looks well below our estimate of NOK 116.9 billion, most of the shortfall is due to differences in accounting for divestitures. Adjusting for these sales, revenue was only 0.4% short of our expectations for the year. For the quarter, the gap versus our projection was a bit wider.The firm’s core Scandinavian operations (about 40% of consolidated revenue) reported slight revenue declines, which we expect to continue. Thailand  (17% of revenue) and Myanmar (5%) continue to be the main revenue trouble spots. In Thailand, the telecom structure has changed from a concession model through state-owned carrier CAT Telecom to a spectrum license model. This transition has not gone smoothly, and Telenor has lost 6.4% of its wireless subscribers over the past year (to 21.2 million). However, the customer decline lessened during the fourth quarter, and we expect 2019 results to stablise. In Myanmar, the entrance of a fourth operator has caused more disruption than we anticipated, with Telenor losing 11.5% of its subscriber base (down to 17.2 million). We expect revenue declines will continue in Myanmar through 2021.
Mostly offsetting these problems, Pakistan (7% of revenue) returned to subscriber growth in the fourth quarter adding 590,000 subscribers, and Bangladesh (12%) remains a solid subscriber and revenue driver. Bangladesh grew its subscriber base by 11.3% to 72.7 million. The business also increased its EBITDA margin to an impressive 62.2% for the quarter. This led to the entire firm hitting 36.7% for the quarter and 41.1% for the year versus our full-year projection of 40.7%. We anticipate Telenor can continue to slowly increase its EBITDA margin.
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