EUR 100.00 For Business Accounts Only

TELEFÓNICA: 9M’19 RESULTS (ANÁLISIS BANCO SABADELL)

3Q'19 vs. 3Q'18 Results
Sales: € 11.902 Bn (+1.7% vs. +1.4% expected and +1.5% expected by the market consensus);
EBITDA: € 2.748 Bn (-31.9% vs. -31.6% expected and -29.4% expected by the market consensus);
EBIT: € 169.0 M (-91.2% vs. -93.0% expected and -83.9% expected by the market consensus);
Net Profit: € -443.0 M (€ 1.139 Bn in 9M'18 vs. € -253.0 M expected and € -290.0 M expected by the market consensus);
9M'19 vs. 9M'18 Results
Sales: € 36.023 Bn (0.0% vs. -0.1% expected and -0.1% expected by the market consensus);
EBITDA: € 11.45 Bn (-5.7% vs. -5.6% expected and -4.8% expected by the market consensus);
EBIT: € 3.623 Bn (-35.6% vs. -36.2% expected and -33.0% expected by the market consensus);
Net Profit: € 1.344 Bn (-53.3% vs. -46.7% expected and -48.0% expected by the market consensus);

The results were in line with our estimates and slightly below the consensus in EBITDA, due mainly to the performance in Spain (larger provision than expected given the personnel restructuring plan). 3Q’19 sales grew +1.7% reported (+3.4% organic) with organic growth in the main regions: in Sp0ain (+1.0%), Germany (+1.9%), the UK (+4.1%), Brazil (+2.6%) and South LatAm (+16.1%) while North LatAm saw drops of -2.5%. The 3Q’19 EBITDA came in at € 2.748 Bn (-31.9% reported and +0.8% organic) hit by restructuring costs (€ 1.876 Bn), capital gains (€ +391 M) and others (€ -10 M). Excluding these effects, the underlying EBITDA would stand at € 4.243 Bn. FCF as of 9M’19 totals € 4.15 Bn (+40.3% vs. 9M’18), allowing NFD to be reduced to € 38.29 Bn (better than expected), which would stand at € 37.6 Bn including the asset sales that have not yet been finalised. The company has reiterated its guidance’19: +2% sales growth (vs. +2.7% BS(e) and vs. +3.6% in 9M’19) and +2% EBITDA (vs. +1.2% BS(e) and vs. +1.1% in 9M’19).
In these results we highlight the solid performance in sales (accelerating in Spain, Germany and Brazil) and the larger debt reduction than expected thanks to cash generation. On the negative side would be the EBITDA generation below the consensus, although in line with our estimates, due mainly to the larger provision in Spain that improves in organic terms (+0.1% organic in 3Q’19 vs. -1% in 9M’19 and vs. +0.6% BS(e) in 3Q’19). Excluding the impact from provisions, with the organic data released (+0.8% increase in organic EBITDA as of 3Q’19 and +1.1% increase as of 9M’19), meeting the EBITDA guidance’19 (+2%) will be conditional on sharp improvement in 4Q’19 (which we think is possible but which could generate doubts). BUY. Target Price: € 8.50/sh (upside 22.60%)