Telenet Q4 results show limited impact from Orange Belgium

Thursday 15 February 2018 | 17:23 CET | Background

Telenet reported what appears good results for the fourth quarter, with organic revenue growth of 1.2 percent. The management saw fit to increase slightly the Belgian operator's forecast for EBITDA growth. It's also starting another share buyback and thinking about a dividend. Capex reached 26 percent of revenues. 

In the end, the share price fell by 5.5 percent, as investors had hoped for more - better results and a dividend. However, on an underlying basis, Telenet is doing OK. The impact from Orange is under control and profitability is improving. 

The Belgian market is not the most dynamic and is driven by the three operators Proximus, Telenet and Orange Belgium, as well as ongoing network investments (fibre at Proximus, Docsis 3.1 for Telenet) and the regulatory efforts to open up cable networks to competition (as used by Orange). After Orange's results, which also disappointed investors, Telenet did not live up to market expectations. Proximus has the last chance, with results due out 04 March. 

Higher margins

Getting a good view of the underlying performance at Telenet is difficult following its takeovers of Base (February 2016) and SFR BeLux (June 2017). Organic growth was 1.2 percent in Q4, after 2.5 percent in Q3 and 0.4 percent in Q2. We estimate a solid gross margin of 65.4 percent, well above a year ago and the previous quarter. The adjusted EBITDA margin rose to 46.4 percent from 43.0 a year ago. 

Only free cash flow fell back a bit, to EUR 427 million on a trailing 12-month basis. For 2018, the company targets EUR 400-420 million, compared to EUR 382 million in 2017, meaning growth of around 7 percent. 

Orange impact limited

In terms of operational developments, the loss of 11,400 customer relationships in the quarter is in line with the recent performance. This is less than the 16,800 customers that Orange won in the period. The question is whether Proximus has held onto its growth in broadband and TV or is it also starting to feel the impact from Orange?

Telenet did show an increase in RGUs and ARPU per household. The number of homes on triple-play plans is slowing but surely increasing, leading to fewer single- and double-play subscribers. Triple-play has reached a penetration of 54.1 percent, a record for the company. Telenet is also growing on the FMC market (multiplays with both fixed and mobile. At the end of 2017, 303,600 households subscribed to its Wigo quad-play offer. 

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