Company Reports

Narrow-moat Swisscom's second-quarter revenue came in ahead of company-compiled consensus at CHF 2.751 billion, a 1.8% increase year over year. Group-level EBITDA was in line at CHF 1.124 billion for the quarter, a 1.3% decline year over year and Swisscom is on track to meet its full-year guidance. Management maintained its 2024 guidance for revenue of CHF 11.0 billion and EBITDA of CHF 4.5 billion-CHF 4.6 billion. Overall, these results support our outlook for Swisscom and we make no changes to our forecasts. We reiterate our CHF 440 fair value estimate and view the shares as overvalued at current levels.

Narrow-moat Swisscom’s revenue decreased by 1.6% in the first quarter to CHF 2.703 billion, with EBITDA decreasing by 0.8% to CHF 1.155 billion, although the decrease would have been greater, close to 1.5%, after excluding nonrecurring items and at constant exchange rates. Management reaffirmed its 2024 guidance of CHF 11.0 billion revenue and CHF 4.5 billion to CHF 4.6 billion in EBITDA. We are maintaining our CHF 440 per share fair value estimate, with shares being overvalued, trading in the CHF 500 range. The board intends to distribute a CHF 22 dividend per share, which has been stable now for 13 years thanks to the stability of the Swiss market.

Swisscom is the leading telecom operator in Switzerland. The company has one of the highest market shares among European telecom operators while also charging high prices to customers. High prices have been maintained due to the overall health of the Swiss economy, a supportive regulatory environment, and lack of alternatives to Swisscom’s networks.

Swisscom announced it will be acquiring 100% of Vodafone Italia for EUR 8.0 billion in an all-cash deal. It represents a 7.8 enterprise value/EBITDA after leases multiple before synergies, and 5.1 times after its expected synergies are realized. The acquisition will be fully financed with debt, significantly raising Swisscom's net debt/EBITDA ratio from 1.5 times to 2.6 times. We remain highly skeptical about Swisscom's decision to add significant financial leverage to its balance sheet to enter a market with irrational competitive behavior and strong revenue and margin pressures. Based on our estimates, this deal is value-neutral to Swisscom at best, with a risk of value destruction if synergies are less than expected or competitive pressures intensify in Italy. The deal is still awaiting regulatory approval and is expected to close in the first quarter of 2025. We maintain our CHF 440 fair value estimate and narrow moat rating for Swisscom.

Narrow-moat Swisscom’s revenue and EBITDA slightly beat consensus expectations for 2023. Sales increased by 0.9% organically in the year, while EBITDA increased by 2.3% organically and rose 4.9% on a reported basis due to one-offs and currency effects. Management also provided its outlook for 2024 with an EBITDA (before leases) expectation of around CHF 4.5 billion to CHF 4.6 billion for 2024, compared with CHF 4.6 billion in 2023. Similar to last year, any improvement in EBITDA will mainly come from cutting costs as revenue is expected to remain flat in 2024. The firm also reiterated its dividend of CHF 22 per share. We plan to incorporate the updated outlook into our model, but do not expect to make a material revision to our fair value estimate of CHF 440. We see shares as overvalued.

Swisscom is the leading telecom operator in Switzerland. The company has one of the highest market shares among European telecom operators while also charging high prices to customers. High prices have been maintained due to the overall health of the Swiss economy, a supportive regulatory environment, and lack of alternatives to Swisscom’s networks.

Narrow-moat Swisscom’s third-quarter revenue increased by 1.5% to CHF 2.75 billion and EBITDA increased by 2.1% to CHF 1.17 billion largely due to pension reconciliations. Management is decreasing its outlook on sales to around CHF 11.0 billion, compared with CHF 11.1 billion-CHF 11.2 billion previously, citing the strong Swiss franc and lower hardware sales in Switzerland. The guidance adjustment caused shares to fall around 5% in early trading. However, more importantly, management reaffirmed its expectations for EBITDA and capital expenditure for 2023. Swisscom is hence on track to achieve its 2023 EBITDA guidance of CHF 4.6 billion to CHF 4.7 billion. Our CHF 440 fair value estimate remains unchanged and we see the shares as overvalued.

We are pleased with narrow-moat Swisscom’s second-quarter results as it managed to grow EBITDA by an impressive 8% despite flat revenue growth year over year (down 0.4%). Indirect costs, mainly labor, IT, advertising, and other expenses have been reduced by 8.5% year over year with almost no effect on subscriber numbers, lifting EBITDA. This has allowed Swisscom to maintain prices for its core products, which we believe helped it keep subscribers. We believe Swisscom is on track to achieve 2023 guidance of CHF 4.6 billion to CHF 4.7 billion in EBITDA and our CHF 440 fair value estimate remains unchanged.

Narrow-moat Swisscom's revenue decreased by 0.3% in the first quarter, to CHF 2,747 million, with EBITDA increasing by 2.4% to CHF 1,163 million, although most of this increase was explained by an accounting reconciliation of pension costs (otherwise, EBITDA growth would have been flat). Management left its 2023 guidance of CHF 11.1 billion to CHF 11.2 billion revenue and CHF 4.6 billion to CHF 4.7 billion in EBITDA unchanged. We are maintaining our CHF 440 fair value estimate, with shares being significantly overvalued, trading in the CHF 600 range. The board intends to distribute a CHF 22 dividend per share, which has been stable now for 12 years thanks to the stability of the Swiss market and acceptable capital allocation.

Narrow-moat Swisscom’s revenue and EBITDA slightly beat consensus expectations for the full year. Sales have increased by 1.0% organically in the year, while EBITDA increased by 3.1% organically, although it dropped 1.6% on a reported basis due to one-offs and currency effects. Management provided an improved outlook for 2023, with an EBITDA (before leases) expectation of around CHF 4.6 billion to CHF 4.7 billion for 2023, compared with CHF 4.4 billion in 2022. Improvement in EBITDA will mainly come from cutting costs, as revenue is expected to remain flat in 2023. We are increasing our fair value estimate to CHF 440 from CHF 420 after incorporating this new guidance (we remain at the lower end, closer to CHF 4.6 billion) and slightly improving our medium-term margin forecasts. Although we see Swisscom as one of the highest-quality operators in the European telecommunication industry, with growing or stable dividends for almost 20 years, we see its shares as significantly overvalued now. Shares are trading at CHF 570 per share compared with our newly revised CHF 440 fair value estimate. A dividend of CHF 22 per share offers 3.8% yield at this point.

Swisscom is the leading telecom operator in Switzerland. The company has one of the highest market shares among European telecom operators while also charging high prices to customers. High prices have been maintained due to the overall health of the Swiss economy, a supportive regulatory environment, and lack of alternatives to Swisscom’s networks.

We are relaunching coverage of Swisscom with a narrow moat and stable moat trend rating. Swisscom is the incumbent telecommunications operator in Switzerland, enjoying high market share in mobile (60%) and fixed-line (50%) markets. Swisscom is able to charge high prices to consumers due to its established position, a rational competitive environment, and supportive regulation. We are reducing our fair value estimate to CHF 420 per share from CHF 470 after revisiting our model assumptions, which now assume smaller EBITDA (after-leases) margin expansion. At this time shares are 15% overvalued compared with our fair value estimate.

Swisscom is the leading telecom operator in Switzerland. The company has one of the highest market shares among European telecom operators while also charging high prices to customers. High prices have been maintained due to the overall health of the Swiss economy, a supportive regulatory environment, and lack of alternatives to Swisscom’s networks.

Narrow-moat Swisscom made a slight adjustment to 2022 guidance during its third-quarter earnings call and now expects sales to be in the lower part of its guided range, close to CHF 11.1 billion. This is due to the strengthening of the Swiss franc against the euro, not because of fundamental reasons. EBITDA and capital expenditure guidance remained unchanged. Revenue pressures have been easing for Swisscom during 2022, and this quarter continued to show improved trends after a tough 2021. Service revenue in Switzerland remained flat, after low- to mid-single-digit declines in the previous six quarters. The consumer division showed stable market share and prices, while the business division still faces pressure over prices, although these have been easing in the past 12 months. We maintain our CHF 470 fair value estimate.

Narrow-moat Swisscom sales declined by 1.6% year over year in the second quarter, mainly affected by the loss of a mobile virtual network operator in its wholesale network, and by lower backhaul volumes. The residential segment remained relatively stable, with a 0.4% sales decline due to price and overall competitive pressure, especially in the mobile business. Swisscom recently introduced its “blue" subscription packages, which aim to simplify product offerings in all segments and reduce churn, with 51% of customers already migrated. The business segment grew by 1.9% on the back of easy comparable figures last year. Group EBITDA declined by 11.7% in the quarter mainly because of CHF 82 million in legal provisions taken. Had this provision not been taken, EBITDA would have seen a decline of 1.7%, in line with revenue. Although Swisscom has done a good job in reducing direct costs of services, inflationary pressures in personnel and energy costs have offset any gains, resulting in a 160-basis-point contraction in EBITDA margins to 39.9%. Management maintained its outlook for 2022, which aims for flattish revenue, EBITDA, and capital expenditures. We are maintaining our CHF 470 fair value estimate and see the shares as overvalued at this point.

Swisscom's results were in line with consensus expectations, with sales flat year over year and EBITDA (after leases) margins expanding by 90 basis points thanks to cost controls. The best news was the softening of sales pressure in service revenue, especially on the consumer front, where pressures softened substantially thanks to competitors offering less promotional activities than in previous quarters. Decline in service revenue was CHF 25 million for the quarter, after eight quarters (since first-quarter 2020) of declines between CHF 40 million and CHF 90 million. Broadband prices remained stable compared with 2021, although mobile prices continue to steadily adjust, with postpaid ARPU (average revenue per user) at CHF 41 compared with CHF 43 one year ago. Fastweb (Italy) revenue grew by 2.4% year over year aided by the wholesale and enterprise segments. Management also confirmed its guidance for 2022. We are maintaining our CHF 470 fair value estimate.

Swisscom's fourth-quarter 2021 results showed the relative stability we are accustomed to, declining 2% during the quarter but growing 0.7% for the full year, as weaker growth during the second half of the year was compensated by the stronger performance in the first half. In Switzerland, the residential and business segments contributed to the decline, as management claims to be seeing some price and competitive pressures, which we assume were caused by Salt through promotional activities as peer UPC-Sunrise has also recently commented on some competitive pressures. Fastweb in Italy declined 1.3% during the quarter, but sales grew by 4.6% for the full year as the company seems to be winning market share in the mobile and broadband segments in Italy. We maintain our CHF 470 fair value estimate.

Swisscom shares are down 7% because of regulatory hurdles to its fiber-to-the-home rollout ambitions, which have caused a slight downgrade to its 2021 guidance. The company now expects revenue of CHF 11.2 billion compared with CHF 11.3 billion previously, with EBITDA guidance unchanged at between CHF 4.4 billion and 4.5 billion, and capital expenditures at the higher end of initial guidance of CHF 2.2 billion to 2.3 billion. Although from a short-term fundamental perspective, the share price reaction could seem exaggerated (CHF 2 billion decline in market capitalization), we believe the market is concerned by the uncertainty on FTTH plans. The Swiss Competition Commission is investigating the way in which Swisscom is deploying fiber, which has caused the company to put its deployment and its partnership with Salt on hold. New information is expected in February 2022. We are maintaining our fair value estimate of CHF 470 per share.

Swisscom has a strong market position as the incumbent in wealthy Switzerland with a benign regulator. While it has a high-quality network and a product portfolio tilted toward premium offerings, we see few opportunities for growth in the domestic market, which generates almost 80% of earnings. The main Swiss market segments in which the firm operates have almost reached saturation. As a result, the firm’s strategy is to maintain its leading position by ongoing investments in fiber and ultrabroadband, grow cloud and IT security services, and optimize its cost base. This is a reasonable strategy, in our view. Swisscom's business-to-business solutions are one of the few areas that can generate new growth, but the firm has been historically slow to capture the local cloud, Internet of Things, and security services market growth. Additionally, these high-growth ICT services are a small part of the firm’s overall offering. In our view, average revenue per user is likely to remain under pressure, caused by price discounts mainly in convergent offerings.

Narrow-moat Swisscom reported a good second quarter, with revenue and EBITDA above consensus expectations (company provided), and raised its 2021 EBITDA guidance range by 2%, to CHF 4.4 billion-4.5 billion, due to better operational performance but also exceptional items. Overall first-half revenue was CHF 5.58 billion, which grew 2.6% due to Fastweb (Italy) growing by 6.9% year over year. We are maintaining our fair value estimate.