TELENET:Estimates reviewed, Accumulate reiterated

Today we will publish an update on Telenet following the publication of the 2Q results. We have reviewed our estimates to take into account recent developments including the football rights and the fourth mobile licence. As a reminder, Telenet published solid 2Q results, showing 5% sales growth and 8% EBITDA growth. The acquired football rights enable Telenet to raise its FY sales growth target slightly to between 5.5% and 6% from 5.5% before. Moreover, the EBITDA margin should improve again on last year. To reflect this, we have upped our FY11 and FY12 EBITDA forecasts. Telenet also reaffirmed its cash return intentions. The current valuation keeps us from going further than an Accumulate rating however.

Our View:
Another solid performance in 2Q: driven by premium TV, telephony and the business segment, Telenet reported 5% sales growth in 2Q, in line with our and consensus expectations. Thanks to tight cost control (once again), EBITDA was even up 8% y/y to € 179.9m, an outstanding 53.2% margin. Bottom-line results were below expectations due to losses on interest rate hedges. Subscriber numbers were again quite soft (as in the previous quarter), but net adds were however mainly situated in the high-end (high-ARPU clients). As a result the ARPU per client relationship was up 8% y/y and almost € 1 q/q.Moreover, Telenet indicates it saw an improvement in business trends since the acquisition of the football rights.

FY sales guidance raised slightly: Telenet lifted its sales growth outlook to 5.5-6% from 5.5% thanks to the football rights. Moreover, thecompany is also still guiding for higher EBITDA than last year despite the costs linked to the football and legal expenses related to the cable regulation. We have upped our FY11 EBITDA forecast slightly, to € 715m from € 713m. Higher D&A (due to the football rights) and financial expenses trigger a lower net result forecast however, and our FY11 EPS forecast slips to € 0.76from € 0.93.
Conclusion:

Accumulate reiterated: Telenet also reaffirmed its cash return intentions, hinting at € 4.5ps capital reductions in 2012 and 2013. Such attractive cash returns will not come cheap however. At 7.8x EV/EBITDA11E, Telenet is trading at a substantial premium to other cable companies. Also the current FCF yield (about 8% this year) shows that the stock is hardly a bargain at current levels. These elements explain our Accumulate rating and € 30 target on the stock.