Mobistar published in-line 2Q service revenues but much stronger-than-expected EBITDA. This was however mainly due to one-offs, and only to a small extent because of cost reduction efforts. The number of TV adds disappoints again. We stick to our Reduce rating and € 47 target.
Mobistar’s 2Q service revenues were down 3.8% y/y, 1% ahead of our forecast but in line with CSS expectations, driven by a 4.5% drop in Belgian service revenues, partly offset by 33% growth in Luxemburg. Handset sales (€ 38m) were strong, and better than our (€ 30m) and CSS (€ 33m) expectations. As a result, the € 419m in total turnover (-1.5% y/y) is 3% ahead of our expectations and 1% ahead of the CSS.
Main surprise in the release is the € 145.5m in EBITDA, up 1.4% y/y and 12% ahead of our and CSS forecasts. However, this is mainly due to exceptionals, being the reversal of a provision (€ 10m positive impact, and related to universal service provision) and a lower level of bad debt provisions (around € 5m lower y/y), as the 2Q10 bad debt provision was very high. Mobistar continues to perform well in terms of cost cutting, having achieved a € 39m cost reduction with its Odyssee plan, almost achieving the € 40mFY target it had set itself. As a consequence of the strong EBITDA, also the € 63.1m net income (-1.3% y/y) is 15% ahead of CSS forecasts.
Subscriber adds (+10k own clients, +15k MVNO) are in line with expectations, with the exception of the number of TV (Starpack) adds, which is only 4.1k, versus our 13k and the 10k CSS expectation. Mobistar had signed up 10k clients over the last two months of 2010, 7k subs during 1Q11, and only 4k in 2Q now, despite increased sales and marketing efforts. The 50k TV net adds target for 2011 Mobistar had set itself seems very hard to achieve now.
Organic cash flow (€ 56m) is slightly below expectations (€ 67m), probably due to working capital effects.
In terms of guidance, Mobistar ups the low end of its 2011 guidance range, now counting on € 520m/€ 535m in EBITDA (was € 505m/€ 535m; KBCS: € 528m, CSS: € 515m) and € 220m/€ 230m net result (was € 210m/€ 230m, KBCS: € 226m, CSS: € 223m). Sales guidance is unchanged, hinting at stable sales y/y.
Our View:
Service revenues in line, EBITDA much better than expected but helped by one-offs, as a result ofwhich Mobistar ups the lower end of its guidance range. Starpack numbers very disappointing.
Conclusion: No reason to change our Reduce rating and € 47 target. Mobistar’s business and results remain under pressure due to competition, regulation, and investments in the Starpack offer (with limited success up till now however). The company is doing a good job in terms of cost cutting, but this is not enough to offset all the negative elements, and we believe results will remain under pressure going forward.Valuation remains unattractive as Mobistar continues to trade at a substantial premium to other telco operators, driven by speculation about an FTE buyout (on which there are no comments in today’s release). Conf call at 10:00am CET.