(26,39 EUR, -0,17%) will publish its 1Q11 results on Friday 6 May before market, followed by a conference call at 2pm CET. Regulatory impacts will likely trigger a 1% sales decline and a 2% lower REBITDA, while EBITDA and net income will be down sharply y/y after 1Q10 saw a large one-off gain from the BICS/MTN transaction. We expect an uneventful release. Hold rating and € 26.3 target maintained.
Our View:
1Q11E –regulation weighs: Mainly due to regulation (another MTR cut from 1 January 2011), 1Q revenues in CBU and EBU will probably be down about 2%, and this will only partly be offset by growth in ICS. On a group level, we arrive at a 1% sales decline. REBITDA is forecast to be down about 2% y/y. 1Q10 EBITDA was supported by a € 436m one-off gain on the BICS/MTN transaction, so 1Q11 EBITDA and net income will be down sharply y/y. Our estimates are in line with consensus expectations.
No changes to FY outlook expected: In terms of FY11 guidance, has guided for up to 1% lower sales and up to 2% lower EBITDA. Our and consensus forecasts are in line with these targets and we do not expect changes to the company’s outlook statements.
Conclusion:
offers an attractive defensive profile but this comes at a fairly high (relative) valuation, with a premium – that we feel is unwarranted –to European incumbents of 5% to 10% on (adjusted) EV/REBITDA11. The stock is therefore still quite expensive from a European perspective while earnings remain under pressure. The 100% consolidation of BICS supported the reported FY10 sales and EBITDA numbers, but on an underlying basis, EBITDA remains under pressure due to regulation and competition. Hold rating and € 26.3 target maintained.