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TELEFÓNICA: 3Q’20 RESULTS (ANÁLISIS BANCO SABADELL)

3Q'20 vs. 3Q'19 Results
Sales: € 10.461 Bn (-12.1% vs. -13.0% expected and -12.8% expected by the market consensus);
EBITDA: € 2.672 Bn (-2.8% vs. +25.3% expected and +26.1% expected by the market consensus);
EBIT: € 544.0 M (+221.9% vs. +641.4% expected and +662.7% expected by the market consensus);
Net Profit: € -160.0 M (€ -443.0 M in 9M'19 vs. € 531.0 M expected and € 547.0 M expected by the market consensus);
9M'20 vs. 9M'19 Results
Sales: € 32.167 Bn (-10.7% vs. -11.0% expected and -10.9% expected by the market consensus);
EBITDA: € 9.747 Bn (-14.9% vs. -8.1% expected and -7.9% expected by the market consensus);
EBIT: € 2.668 Bn (-26.4% vs. -6.8% expected and -5.8% expected by the market consensus);
Net Profit: € 671.0 M (-50.1% vs. +1.3% expected and +2.5% expected by the market consensus);

Results in line with expectations in adjusted terms with an impairment in Argentina (€ 785 M) that leave non-adjusted figures below estimates. As expected, results were severely hit by the exchange rate (around -8.7% in sales) and by Covid-19 (€ -591 M on sales). The 3Q’20 sales dropped -12.1% (-4.3% organic) with Spain falling -4.3% (vs. -4.4% BS(e)), the UK -10% (vs. -7.3% BS(e)), Brazil -31.4% (vs. -32.4% BS(e) (and -2.3% in local currency) and Hispam -13.6% (vs. -20.4% BS(e)), with only Germany growing +0.4% (vs. +0.1% BS(e)). The 3Q’20 EBTIDA was hit by the impairment in Argentina and by € 46 M in restructuring costs (mainly Germany and Hispam), totalling € 2.67 Bn (-2.8% reported and -8.3% organic). Good performance of FCF with € 1.58 Bn generation in the 3Q’20 (+13.2% vs. 3Q’19), coming in at € 2.8 Bn in 9M’20 (+12% above expectations). NFD totalled € 36.68 Bn (-1.5% vs. 2Q’20), not including the full FCF improvement from treasury stock acquisition. In this regard, the company announced the cancellation of 1.5% shares.
Given the poor share price performance in 2020 (-50% in absolute terms and -20% vs. IBEX and -28% vs. sector), the market reaction should be positive, as the dynamics in the main markets are in line with expectations. Furthermore, the share could price in the fiber investment agreement in Germany that reduces the investment pressure and reinforces the landline operations in the country. BUY. Target Price: € 5.90/sh (upside 98.72%).