EUR 850.00 For Business Accounts Only

Morningstar | TELNY Updated Forecasts and Estimates from 29 Mar 2019

Telenor is the incumbent telecom operator in Norway, with significant exposure to other Nordic countries. Its business generates significant free cash flow (we expect about NOK 20 billion on average annually for the next five years, excluding asset sales). Many European telecom operators have had exposure to other countries with similar cultural or geographic positions, but have only recently sought to power growth through expansion into other emerging markets. In contrast, Telenor has had a culturally broad and geographically diverse footprint for over 15 years.Asia is the firm's main growth driver. However, revenue growth in many markets is shifting from high subscriber growth to wireless data growth. Wireless penetration rates in much of Asia are now approaching the levels of more-developed countries, slowing subscriber growth and the firm’s top line. This is partially offset by rapid increases in data usage. While data usage is off a lower base than developed markets, due to lower voice revenue, some of these countries are actually crossing over to higher average revenue per user sooner than developed markets. This crossover occurs as data revenue growth becomes higher than voice and SMS revenue declines. That said, Myanmar, which has been phenomenally successful, is already showing rapidly slowing subscriber growth rates after less than three years of operations. We are pleased to see Telenor increase its focus on the faster-growing Asian markets and its home Nordic region by exiting other geographies. It has sold down its position in Veon, and its remaining shares primarily back a $1 billion exchangeable bond. It has also exited Uzbekistan, India, Hungary, Serbia, Montenegro, and Bulgaria. These last four countries were sold at a price that we believe represented a fair multiple of about 6.5 times EBITDA. We were particularly pleased to see Telenor exit India, where it was late to enter, as the market has become extremely competitive due to Reliance Jio’s entrance.