EUR 100.00 For Business Accounts Only

EUSKALTEL: 1Q’21 RESULTS AND T.P. INCREASE (ANÁLISIS BANCO SABADELL)

1Q'21 vs. 1Q'20 Results
Sales: € 174.2 M (+1.4% vs. +0.8% expected);
EBITDA: € 73.0 M (-16.8% vs. -12.2% expected);
Net Profit: € -2.1 M (€ 19.1 M in 1Q'20 vs. € 10.2 M expected);
The results were marked by the national expansion of Virgin and by the TOB from MásMóvil under way (admitted by the Spanish watchdog on 20/04 and pending approval). The client base grew by +24,000 (+2.8%, 21,000 fixed-line and 3,000 only mobile), with 30,000 new clients for Virgin (5,000 only mobile), whose total now reaches 101,000 (80,000 fixed-line) and with traditional regions losing 4,000 clients. 1Q’21 sales grew +1.4% (vs. +0.8% BS(e)) to € 174.2 M, with mass-market sales falling -0.2% (vs. +0.7% BS(e)), hit by the campaign to hold on to clients (very positive impact on churn rate) and stronger competition, which has led to ARPU deteriorating to € 54.96 (-8.5% vs. 1Q’20 and -3.1% vs. 4Q’20). B2B sales rose +8.7% (vs. +1.3% BS(e)) to € 32.3 M, and Wholesale sales remained flat at € 8.5 M (vs. € 8.6 M BS(e)). 1Q’21 EBITDA stands at € 73 M, meaning a -16.8% drop (vs. -12.2% BS(e)), hit by the falling sales resulting from the campaign to hold on to clients (eroding ARPU), from the national expansion of Virgin and from the suspension of the wholesale contract renegotiation (due to the TOB under way, for 100% at a price of € 11.17/sh.). 1Q’21 Net Profit was a negative € -2.1 M, due to the falling EBITDA and higher amortisations.
We do not expect an impact, as the stock is trading at levels close to the TOB price. Our recommendation is to ACCEPT THE BID, and we raise our T.P. to € 11.17/sh.
Note that on 29/03, MásMóvil has launched a friendly TOB on 100% of EKT at € 11.17/sh. in cash (+16.5% premium vs. closing price from the previous day, +26.8% on the weighted price of the past 6 months and +31.4% on our T.P.). This price means a 10x EV/EBITDA’20 ratio (vs. 9.1x offered by investment funds for MásMóvil and ~5.5x for the sector) and a 21x EV/Op. CF. The offer has the endorsement of 52.32% of EKT’s share capital (Zegone, with 21.4%, Kutxabank with 19.9% and Corp. Alba with 11%) and is subject to a level of acceptance of at least 75% plus 1 share of the share capital and all due competition authorisations (we do not expect significant obstacles). We expect the deal will be closed before the end of 2021.