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TELEFÓNICA: 1H’20 RESULTS (ANÁLISIS BANCO SABADELL)

2Q’20 vs. 2Q’19 Results:
Sales: € 10.34 Bn (-14.8% vs. -15.1% BS(e) and -14.4% consensus);
EBITDA: € 3.315 Bn (-25.3% vs. -21.4% BS(e) and -22.4% consensus);
EBIT: € 1.033 Bn (-42.7% vs. -38.1% BS(e) and -39.7% consensus);
Net Profit: € 425.0 M (-50.7% vs. -49.9% BS(e) and -52.0% consensus);
1H’20 vs 1H’19 Results:
Sales: € 21.706 Bn (-10.0% vs. -10.2% BS(e) and -9.8% consensus);
EBITDA: € 7.075 Bn (-18.7% vs. -16.7% BS(e) and -17.2% consensus);
EBIT: € 2.124 Bn (-38.5% vs. -36.1% BS(e) and -36.9% consensus);
Net Profit: € 831.0 M (-53.5% vs. -53.1% BS(e) and -54.1% consensus);

The results were poor, hit by Covid-19 (which subtracts -7.8% from total group EBITDA) and FX, and worse than expected in EBITDA due mainly to an impairment in Argentina (€ 109 M), although better in FCF, allowing debt to be reduced to € 37.2 Bn (vs. € 37.7 Bn expected). 2Q’20 sales fell -14.8% (-5.6% organic), with Spain falling -5.2%, UK -3.8%, Brazil -5.1% and Germany +0.3%. 2Q’20 EBITDA totalled € 3.32 Bn, a -25.3% drop (-10% organic). TEF has maintained its DPS’20 of € 0.40/sh. (0%, 10.4% yield, although in voluntary scrip format vs. previous cash and with no share buyback) and the guidance’22 of growth in sales (vs. +0.5% BS(e) CAGR’19-22) and +2pp growth in EBITDA-CAPEX over sales (vs. +2.3pp BS(e)).
Additionally, TEF has reached an agreement with Liberty Latin America Ltd. to sell all of TEF Cost Rica for an EV of US$ 500 M (€~425 M), an implied multiple of 7.4x EV/EBITDA, and which will allow for a debt reduction of -1.1%. Pre-tax capital gains are estimated at €~210 M. The deal is subject to certain conditions, including those dealing with regulatory approval.
Given the stock’s poor performance since February’s highs (-39% in absolute terms and -11% vs. IBEX), we do not expect a significant impact from these results, highly affected by FX and Covid-19 but strong in terms of cash generation and debt reduction. BUY. T.P. € 6.10/sh. (+59.52% upside).