EUR 850.00 For Business Accounts Only

Morningstar | Telia Reported Solid Revenue, but Driven by Foreign Exchange; Shares Fairly Valued

Telia reported third quarter revenue that initially looks strong, but it is primarily driven by positive currency movements. We expect to maintain our fair value estimate of SEK 40 and narrow moat rating. We think the shares are fairly valued. The firm reported revenue grew 5.5% year over year, versus our full-year projection of 7.3%, which also includes some acquisitions. However, in local currency terms and excluding acquisitions, revenue increased just 0.1%. In Sweden, its largest market, it succeeded in growing its wireless service revenue 1%, but this was insufficient to offset a 3.1% drop in fixed-line revenue, taking revenue for its operations in the country down 0.5%.

Reported revenue grew 16% in Finland, 11% in Norway,16% in Lithuania, and 13% in Estonia as the Swedish krona declined against the local currencies. In Lithuania and Estonia, local revenue growth was in the 3% to 5% range and remains its fastest growth area. However, these are also smaller markets. In Norway, Telia closed on its acquisition of TDC’s Norwegian operation on Oct. 15. These operations provide Telia with the ability to offer a converged product in Norway and will strengthen its position versus incumbent Telenor. We are pleased to see convergence becoming more important in the Nordic markets and believe this will enhance the results of those operators  that have improved their network positions by owning both fixed-line and wireless assets. We think having converged networks will improve these companies’ ability to compete relative to operators that only offer fixed-line or wireless services.

Telia also continues to implement its cost-cutting program and increased its reported EBITDA margin to 33.7%, slightly ahead of our full year estimate of 33.3%. However, the fourth quarter historically has lower margins, so we anticipate being in line for the full year.