the higher margin target, allowing for a small upgrade of our EBITDA forecast. Subscriber numbers were again a bit soft while churn in TV and broadband showedan uptick following the announced price hikes. We stick to our investment case and our Accumulate rating and € 30 on Telenet.
Our View:
3Q11 shows record margin: Telenet’s 3Q11 sales are up 5% (all organic) to € 344.9m, in line with the CSS (€ 345.5m) but a touch below our forecast (€ 347.1m). Excellent cost control translated into a very strong margin performance (again), and Telenet reports a 54.1% EBITDA margin over the quarter (a new record, despite the launch of the football offer), better than the 52.7% we expected and the 53.1% CSS forecast. As a result, EBITDA is up 6% y/y to € 186.7m, about 2% ahead of our (€ 182.9m) and CSS (€ 183.6m) expectations. The net result is a negative € 47m, which is much worse than our (€ 23.1m profit) and CSS forecasts (€ 31.9m profit). This is due to a € 28.5m impairment on the DTT licence and losses on IR hedges (€ 68.3m).
FY guidance update triggers minor model changes: Telenet lowers its sales growth target to 5.5% from 5.5% to 6% and the company now targets a 52.5% EBITDA margin. We have fine-tuned our estimates following the revised guidance, triggering only minor changes to our FY11 and FY12 EBITDA estimates. Bottom-line numbers are impacted by the 3Q11 losses on derivatives of course.
Conclusion:
Accumulate maintained: the 3Q release again confirmed that Telenet offers good growth, which is coupled with attractive cash returns. At 8x EV/EBITDA11E, the stock is not cheap however. 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.