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BELGACOM: Time to Buy

BELGACOM: Time to Buy

2.11.2011 10:39

Today we will publish an update on Belgacom (21,53 EUR, 0,61%) following the 3Q release. Belgacom published a solid set of 3Q results in terms of sales, profits and subscriber numbers. The adjusted FY11 guidance triggered a downgrade of our sales forecast but higher profit estimates. We see the current valuation and high dividend yield as very attractive and we upgrade to BUY from Accumulate. Belgacom confirmed that in early December, it will pay out its € 0.50 interim dividend.

Our View:
3Q11 results: 3Q11 sales are down 2.7% to € 1,596m, 1% below our estimate (€ 1,614m) while EBITDA is down 3.7% y/y to € 472m, 2.2% ahead of our € 462m estimate. D&A are substantially down, leading to the € 292m in EBIT that is up 1.7% y/y and 10% ahead of our forecast (€ 267m). Net income was flat y/y at € 195m, 11% better than we expected. Subscriber additions were again stronger-than-expected in TV and mobile, confirming that the company’s steps to protect market share are showing success.

FY outlook altered: Belgacom adjusts its FY outlook to about 3% revenue decline (from 1 to 2% decline previously) and between 3% and 4% REBITDA decline (was ‘closer to 4%’). We reviewed our model to take into account the updated outlook and the 3Q trends, leading to a downgrade of our sales forecasts but a small upgrade of our EBITDA estimate for this year. Also helped by the lower-than-expected D&A charges our FY11 EPS is upped to € 2.38 from € 2.29. Our FY12 EPS goes to € 2.31 from € 2.30, despite a somewhat lower EBITDA forecast.

Upgrade toBuy: following the drop in the share price, Belgacom is trading at a small discount to European telcos (4.5x EV/EBITDA12E vs. 4.8x for the peer group) and offers an attractive 10% dividend yield (Belgacom has already committed to the € 2.18 dividend that will be paid out over the 2011 results). The company is also executing a € 200m share buy back programme. While we admit that Belgacom is under pressure due to increased competition in Belgium, the encouraging 2Q and 3Q subscriber adds suggest that the company is taking the right steps to protect market share, and we believe the company’s challenges and issues are well reflected in the current valuation. Hence we upgrade to BUY from Accumulate.

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