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EUSKALTEL: 1Q’20 RESULTS AND CHANGE OF RECOMMENDATION TO BUY (ANÁLISIS BANCO SABADELL)

1Q'20 vs. 1Q'19 Results:
Sales: € 171.8 M (+0.1% vs. +0.9% BS(e));
EBITDA: € 87.7 M (+8.1% vs. +6.3% BS(e));
Net Profit: € 19.1 M (+60% vs. +48% BS(e));
The results were in line with our estimates, showing little impact from COVID-19 and stability vs. the trend seen in previous months. The client base remain stable, as expected, with 400 more clients in the mass market fixed segment and 3,000 fewer clients in mobile only, whereas the ARPU came in at € 60.04/month (vs. € 60.07/month in 4Q’19 and vs. € 60.5/month BS(e), with promotions offsetting price increases). Thus, total sales grew +0.1% (vs. +0.9% BS(e)), with mass market sales falling by -0.3% (vs. +0.3% BS(e)), B2B sales falling by -2% (vs. -2.6% BS(e)) and revenues from Wholesale and others growing by +15% (vs. +10% BS(e)). 1Q’20 EBTDA came in at € 87.7 M (+8.1% vs. +6.3% BS(e)), with the margin coming in at 51.1% (vs. 47.3% in 1Q’19) thanks to efficiency measures, and lower marketing, Customer Service and labour costs, which push total costs down -7.2% (accelerating the -1.7% drop seen in 4Q’19). Net Profit increased by +60% to € 19.1 M, thanks to the improvement in EBITDA. The company confirms the 2020 guidance: between € 700 M and € 710 M of sales (+2.6% vs. FY2019 and vs. € 696 M BS(e) and € 691 M consensus), between € 340 M and € 350 M of EBITDA (+1.3% vs. FY2019 and vs. € 336 M BS(E) and € 337 M consensus; with the guidance pricing in a fall of € 10/20 M) and between € 170 and € 180 M of Operating CF (vs. € 191 M BS(e) and vs. € 177 M consensus). Also, the company maintains the dividend’19 (€ 0.31/sh.; 4.8% yield), of which a payment of € 0.17/sh. still remains (scheduled for July 20; +10%, 2.6% yield)..
Given the stock’s rout since February highs, just before the onset of COVID-19 (-25% in absolute terms), and bearing in mind the stable top line, the better debt data and the improved EBITDA, as well as the fact that we do not expect a relevant impact from COVID-19 due to the defensive nature of the company/sector (very slight changes in our scenario of V-shaped recovery; around -5% in EBITDA’20-22e and around -9% in T.P. in a scenario of U-shaped recovery), we change our recommendation to BUY, with +30.97% upside to our T.P. of € 8.50/sh.