In an interview with the WSJ, (15,55 EUR, 0,13%) CEO Richard stated that FTE is ‘evaluating’ its position in Austria, Switzerland, and Belgium, as the company is no longer growing in those countries. Both a consolidation scenario and a sale of the company’s stakes in the local operators are being contemplated.
Our View:
Our base case scenario is a tie-up between Mobistar and Telenet, for example through a joint-venture, and we believe this would make a lot of sense for both parties, as it would create a strong quadruple-play operator.
On the one hand, it would solve Mobistar’s strategic challenge of being a mobile-focussed player in a converging world (we fear Mobistar’s market share will be under pressure in the coming years as subscribers could switch to a quadruple–play bundles from Telenet or Belgacom).
On the other hand, for Telenet, this scenario would make sense as well, as over the next few years, its current growth engines (broadband and TV and to a lesser extent telephony) will probably gradually run out of steam as penetration rates continue to rise, pushing it to look for other sources of growth.
In this scenario we believe Telenet would be in a stronger position than Mobistar, and we would rather be a Telenet (Accumulate, € 34 target) shareholder than a Mobistar (Reduce, € 47 target) shareholder.
While we do not think a buy-out by FTE is the most likely scenario (this would not change Mobistar’s fundamental issues), FTE’s comments could trigger again speculation about such a scenario – we would see this as an opportunity to further reduce positions in Mobistar.
Conclusion:
We downgraded to Reduce yesterday, as the current premium (20% premium to EU telco’s on FY11E EV/EBITDA) seems unjustified given both the regulatory pressure and the fundamental challenges the company is facing.
1Q11 results will be published on Thursday morning.