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EMEA telecoms sector outlook ‘stable but fragile’ as revenues slow

Publication Date: 01 Nov 2018 - By Gaurav Sharma (Associate Editor ReachX) By Gaurav S.

Equity Fundamental Equity Middle East UK EU Telecom & Media


Despite less than 1% expected in revenue growth, the outlook for the telecoms industry in Europe, the Middle East and Africa (EMEA) remains stable into 2019 as telcos look set to maintain EBITDA margin growth and strong operating cash flow, according to a leading rating agency. 

In a report for its clients, Moody's sounded upbeat on the sector, but warned it would not be all plain sailing.  

"Our outlook on the EMEA telecoms sector remains stable but fragile into 2019, as intensifying competition, slower GDP growth and the impact of past regulation continue to raise concerns about the future sustainability of revenue growth," said Carlos Winzer, Senior Vice President at Moody's.

M&A in the sector will increase, according to Moody's, as convergence between fixed, mobile and cable-television businesses accelerates, as companies get ready for fifth-generation (5G) mobile technology and as they look for ways to offset low revenue 

Mobile-only and cable companies are clear candidates for M&A as the fixed and mobile assets provide the necessary combination for convergence. "However, the introduction of 5G is unlikely to be a catalyst for near-term revenue growth," the agency added.

Moody's expects leverage to remain high among European telecoms companies such as Telefonica (Rated Baa3 stable by Moody's), Vodafone (Baa1 review for downgrade), Telecom Italia (Ba1 stable) and Deutsche Telekom (Baa1 negative). 

Continued high capital spending needs together with the impact of 5G spectrum auctions could see industry leverage rise into 2019 for some companies.

"Outside Western Europe, revenue growth should continue to support credit quality. Central and Eastern European operators' growth will be supported by better macroeconomic growth, with further M&A on the horizon.

"Russian telecoms' credit quality will remain strong despite ongoing profitability pressures and higher investment to meet data storage requirements. In Africa and the Middle East, higher commodity prices will support growth, driving low- to mid-single-digit revenue growth in the next 12-18 months, Moody's concluded.


I have positions in the securities referenced in the contribution

I do not use any non-public, material information in this contribution

To the best of my knowledge, the views expressed in this contribution comply with UK law

I agree with the terms and conditions of ReachX

This contribution is for informational purpose and does not constitute investment advice nor is it an offer to sell or buy, nor is it a recommendation for any security.

Gaurav S.


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