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TMT Focus: Thoughts on 4Q earnings so far

Publication Date: 26 Mar 2019 - By Philip Grose By Philip Grose
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Equity Fundamental Equity EU ex-UK UK Technology Telecom & Media

In Cross Asset Advisors’ March post, Philip Grose discusses:

• Altice’s 4Q consensus and the technical around 1H & 2H
• Thoughts on 4Q earnings so far 
• Spotlights on companies with €70bn of debt & €50bln of equity: (e.g. Orange, Liberty Latam and Digicel)

4Q18 Earning Season

The revenue/earnings underperformance in European TMT earnings discussed in our February newsletter were confirmed with the recent announcers. Through the end of February, the Euro STOXX Telecommunications Services had a -24% surprise factor, with earnings down -15% y/y in 4Q.

To put the Telecom disappointment in context, 4Q earnings across all European corporates are expected to increase +2.6% from year-ago levels when 4Q reporting ends. More worrying, the 4Q earnings decline of -15% y/y is at an accelerated pace vs overall FY18 Telecom earnings, which were down -12% vs FY17 (all data from Refinitiv).

Orange stands out to us

Orange may be the value play: some growth, positive tax changes, low leverage, and a sustainable dividend. The stock has a 5% dividend yield and trades at 5x EBITDA. Looking forward, the company has an improving P/E ratio (12x to 10x adjusted according to Bloomberg), while management is guiding to 2019 as “another year of growth.”  The company maintains a solid investment grade leverage ratio of ±2x. 

EM Telecoms: Digicel & Liberty Latam

Digicel reported a low cash balance for the December quarter end, while Revolver/Term Loan A creditors demanded partial repayment in return for widening/waiving maintenance covenants on the company’s bank loans. The covenant news and creditors pressuring the company negated the goodwill from the 2018 exchange.That was until the company announced last week that it placed $600mm of Secured Notes. 

Satellite companies

What is next after C-Band for the sector? From an operational perspective, the industry is challenged with its top-line declining at a more accelerated pace than European telecom. 

Contact us at mg@reachx.co to book a consultation with Philip Grose and access the full monthly report

Disclosure:

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.

Philip Grose

 

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