On the backdrop of a mobile telephony market where prices have dropped by approximately 20%, Mobistar today issues a profit warning and suspends the dividend. Its results were normally due on Tuesday. As a mobile-centric player, it remains problematic for Mobistar to recoup mobile losses with fixed products, something which its competitors eagerly do with bundled offers.
Financials: For 1H13, Mobistar announces a turnover of € 757.0m (KBCS: € 779.5m, css: € 780.2m) which is down 5.7% y-o-y. Decreased out-of-bundle revenues, triggered by the accelerated take-up of the Animal tariff plans, were the main culprit, alongside the € 17.0m MTR impact and € 14.1m regulatory drag of roaming. The negative trend flowed through to EBITDA, which amounted to € 180.9m for the first half (KBCS: € 199.7m, css: € 200.9m), effectively 27.6% lower y-o-y. Mobistar quotes massive repricing, especially in 2Q13, as the reason for this bad performance. MTR and roaming had an impact of € 7.6m and € 11.4m. It is however important to emphasize that 1H12 EBITDA benefitted from the reversal of a € 17.5m USP provision. The organic cash flow for 1H13 came in at € 68.9m (vs € 62.6m a year earlier). Operating cash flow, squeezed between rocky operationals and a higher capex need, amounted to € 27.6m (vs € 81.5m last year).
Mobile activities: Total number of Mobistar subs declined by approximately 5.5%, whereas the MVNO customer base grew by a whopping 73.3%. The simplification of the Animal tariff portfolio and the extension toward prepaid in April 2013, together with the reduction in price of the Panther and Kangaroo Unlimited plans were the main repricing actions of the period. As a direct result of the price war in mobile (which intensified during 2Q13), Mobistar’s ARPU continued its downward trend to € 27.35, down 5.2% y-o-y. We believe it remains problematic for Mobistar that it cannot recuperate what is loses in mobile on the fixed side (i.e. bundling), something which its competitors rely heavily upon.
Fixed activities:In April 2013, Mobistar announced that it decided to suspend the commercialisation of its fixed services, while awaiting more favourable (cable) regulation. The implications of this move were a -€ 1.2m write-down impact and y-o-y decreases in fixed subs of -13% for ADSL, -5.1% for fixed telephony and -24.4% for TV. As to the opening of the cable, the definitive conclusions on the adoption of the qualitative/quantitative decisions can be expected in Sep-Oct 2013.
Lowers guidance:On the basis of the results recorded during 2Q13, Mobistar had decided to cut its outlook for FY13. As such, the company guides for a decrease in total turnover of maximum 12% (previously between -4 and -6%) and an EBITDA of minimum € 300m (previously € 380-420m, css at ~€ 390m). Operating cash flow, which was previously guided for between € 175m and € 215m, would now at least attain € 100m.
Conclusion: Following the disappointing numbers, the guidance cut and the dividend suspension (we had € 1.80 in our numbers) we put our target price under review and await the conf call scheduled at 9am CET. Hold reiterated.