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

1Q'20 vs. 1Q'19 Results:
Sales: € 11.366 Bn (-5.1% vs. -5.1% BS(e) and -5.7% consensus);
EBITDA: € 3.76 Bn (-11.8% vs. -10.5% BS(e) and -9.8% consensus);
Net Profit: € 406.0 M (-56.2% vs. -50.3% BS(e) and -43.8% consensus);

The results came in below expectations in EBITDA due mainly to the performance in Spain, HispAm and others. TEF maintains the DPS’20 of € 0.40/sh. (0%, 9% yield, although in scrip format vs. cash previously and with no share buyback) and the guidance’22 (expecting sales growth vs. +0.5% CAGR’19-22 BS(e) and +2pp growth in EBITDA-CAPEX over sales vs. +2.3pp BS(e)), but it has withdrawn the guidance’20 due to the uncertainty (now suggesting slightly negative to stable EBITDA-CAPEX’20 vs. +10% BS(e)). NFD reached € 38.22 Bn (+0.5% vs. expectations), an increase of € 479 M vs. 2019, due mainly to the amortisation of capital instruments (€ 723 M), shareholder remuneration and coupon payments (€ 351 M) and labour-related commitments (€ 284 M).
Separately, the company has announced an agreement to merge TEF O2 with Virgin Media: TEF will receive € 6.5 Bn (£ 5.7 Bn, including a compensatory payment of £ 2.5 Bn, and the rest will be due to the higher debt level of the asset) and will control 50% of the new company, valued at € 27.4 Bn (and which will have a target of between 4-5x NFD/EBITDA, £~11.3 Bn after capitalisations). The deal would hardly reduce debt initially (