1&1:Quarterly Results/2023 Q3

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Return to: Discussions | Q3 2023 Earnings Report | Q3 2023 Earnings Call Notes |1&1:Quarterly Results/2023 Q2 |1&1:Quarterly Results | 1&1 | Earnings Season:2023 Q3 | Recent Developments

Results

  • Management confirmed its guidance for 2023 and said it expects to end the year with 1,000 antenna sites and start growing the number of antenna sites by 2,000 annually starting from 2024..

“Despite further delivery failures at our main partner, deployment of radio masts are improving overall – the ramp-up gained momentum in the second half of the year as announced,” the report reads.

Key Items Q3 2023 Y/Y Growth
Revenue 1.039 billion 4.07%
Service revenue 834.3 million 3.7%
EBITDA 159.1 million -12%
EPS 0.42
Antenna sites 503
Access contracts 16.11 million 2.9%
mobile contracts 12.10 million 5.0%
broadband contracts 4.01 million 2.9%

Summary of the earnings call

In the earnings call[1];

  • CEO Ralph Dommermuth said the agreement already reached with Vodafone is binding and that no party can leave ongoing detailed discussions, but in case of disagreements, the Network Agency will act as the arbitrator.
  • Dommermuth said that if the parallel MVNO operation is not authorized, they will have to migrate existing 5G customers to their own network, which has a small 5G footprint, but he doesn’t expect any major implications because although its competitors use 3.6GHz, some of their customers have weak 5G displayed on their devices due to the use of old antennas.
  • He said that they are not thinking about consolidation since they see good business opportunities but they are open to collaborating with other operators in handling grey spots, especially in rural areas.
  • Regarding the position statement by the Federal Cartel Office, Dommermuth said there is a lot of truth in it but they are open to any decision that will provide them with low-band frequency in the right capacity.
  • He said that they have clear plans to add 2,000 antenna sites in 2024, though they target 3,000 antenna sites.

Management Guidance and Analysts Estimates

Management Guidance

  • Management expects second half to be stronger than the first half. They project service revenue will grow by 4% in the second half versus 0.2% in first half [2]
Key Items[3] Q3 2023 2023 Y/Y Growth
Antenna sites more than 500 1,000
New Customer Contracts 500,000 42.9%
Service Revenue €3.23 billion ~2%
EBITDA €655 million -5.5%
Access Segment Revenue €775 million 4%
1&1 Mobile Network start-up costs € - 120 million 129%
Cash Capex €320 million 28%

Analysts Consensus Estimate

Key Items[4] Q3 2023 Y/Y Growth 2023 Y/Y Growth
Revenue EUR 1.013 billion 1.5% EUR 4.04 billion 2.0%
Service revenue EUR 821.8 million 2.1% EUR 3.22 billion 1.3%
EBITDA EUR 164 million -9.3% EUR 654.7 million -5.6%
EPS EUR 0.44 -20.9% EUR 1.74 -20%
Access Contracts 16.09 billion 2.8% 16.25 billion 3.0%
Mobile Internet contracts 12.07 billion 4.7% 12.23 billion 4.7%
Broadband contracts 4.03 billion -2.5% 4.02 billion -2.0%
Capex (Cash-Capex) EUR -320.5 million 28.2%
Free Cash Flow EUR -42.2 million -34.6%
Net adds
Access 440,714 466,655
Mobile 545,276 545,227
Broadband -104,000 -82,143

Analysts Opinions

Current price target and ratings

Firm Price target Rating
Deutsche Bank[5] 17 euros buy
Goldman Sachs[6] raised from 13.50 to 20.00 euros buy
UBS[7] 20.70 euros buy
DZ Bank[8] raised from 14.50 to 18.20 euros buy
Berenberg[9] lowered from 38 to 30 euros buy

1&1 to post good Q3 results

  • Analyst Keval Khiroya expects 1&1 service business to have accelerated (Nov 1)[5].
  • Berenberg analyst Usman Ghazi expects (Sept.13) 1&1's sales growth in H2 to exceed expectations. He added that "its operating earnings estimates (Ebitda) are currently below consensus forecasts."[10]

Vodafone deal reduces need and cost for 1&1 to build own mobile network

  • Goldman Sachs analyst, Andrew Lee, believes (Oct.2) that the contract with Vodafone is positive since it makes longer-term developments easier to predict. He expects 1&1's construction of its own network to progress slowly and on a less large scale[6].
  • UBS analyst Polo Tang said (Sept 26.) that his conversations with european executives and regulatory authories from telecomunication sector established that 1&1 has cut back on plans to build its own network. He said this could give the stock a boost[11].

Extension of frequency usage rights reduces bidding wars and may make 1&1 scale down on it network buildup

  • UBS analyst Polo Tang said (Sept.4) that the fact that the Federal Network Agency wants to extend the useful life of frequencies is positive for 1&1 since it means that the company "would now scale back its plans to build its own network."[12]
  • DZ Bank analyst Karsten Oblinger (Sept.14) said the Federal Network Agency's planned waiver of the upcoming spectrum auction eliminates bidding wars[8].

1&1 is still undervalued

  • Berenberg analyst Usman Ghazi said (Sept.13) 1&1's shares are still undervalued despite 40% recovery from their lows[9].

Competitor results

Telefonica Deutscheland

Key Items[13] Q3 2023 Y/Y Growth Analysts estimate
Total revenue EUR 2.1 billion 2.2% EUR 2.1 billion
Mobile service revenue EUR 1.52 billion 3.4% EUR 1.5 billion
mobile customer accesses 45 million -4.3%
Mobile postpaid net adds 396K 30%
Mobile prepaid net disconnections -22K -62%

Deutsche Telecom German business

Key Items[14] Q3 2023 Y/Y Growth Analysts estimate
Total revenue EUR 6.31 billion 2.7% EUR 6.25 billion
service revenue 2.4%
branded contract customer additions 350,000 254,000
broadband net additions 96,000 65,000

References