EARNINGS PREVIEW: European Telcos' Mobile Revenue To Improve

Date : 04/26/2010 @ 5:57AM
Source : Dow Jones News
Stock : Hellenic Telecommunications Organization S.A. (OTE)
Quote : 3.61  0.0 (0.00%) @ 2:05AM

EARNINGS PREVIEW: European Telcos' Mobile Revenue To Improve

Telecom Italia (NYSE:TI)
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TAKING THE PULSE: European telecom operators are expected to report signs of cyclical recovery in mobile revenue numbers, but the domestic fixed-line performance will be mixed.

Sanford Bernstein telecom analysts expect the results "to show that recent weakness in mobile revenues has been in large part cyclical, and that recovery of mobile top line will follow improving GDP as customers take up and pay for new data products."

They expect Telecom Italia SpA (TI), BT Group PLC (BT.A.LN), Vodafone Group PLC (VOD) and Deutsche Telekom AG (DT) to report results ahead of market expectations, while Telefonica SA (TEF), France Telecom (FTE) and KPN (KPN.AE) "are more likely to disappoint."

Despite rising expectations, news on shareholder remuneration at Vodafone, and BT's Investor Day should drive solid performance for both, Sanford Bernstein said in a research note.

Telecom analysts at Citigroup don't expect any "negative shocks" so soon after fourth quarter results and guidance. "Our concerns remain focused on margin rather than capex given the risks that marketing and distribution costs will need to rise ahead of revenue trends materially picking up and smartphone subsidy spend will move up a gear," Citigroup said.

Citigroup's top picks are Vodafone, Bouygues SA (EN.FR), BT and United Internet AG (UTDI.XE), which are all rated buy.


---Royal KPN NV (KPN.AE) 1Q results---(April 27)

MARKET EXPECTATIONS: KPN is expected to deliver a solid set of results consistent with the guidance provided at the time of the fourth-quarter results, JP Morgan says. In its home market KPN faces increasing competition from cable network providers in advance of KPN's fiber roll out, Citigroup analysts say. In Germany, Citigoup sees E-Plus service revenue improving but still negative with a 1% decline in the first quarter compared with a decline of 1.3% in the fourth quarter.

MAIN FOCUS: KPN is currently engaged in a spectrum auction in Germany and secured two 10 megahertz blocks at auction in its Dutch core market. In Germany, E-Plus could emerge without valuable spectrum in the 800 megahertz band, the most cost efficient way to build up fourth generation networks, though KPN confirmed it wants to acquire a valuable combination of spectrum in the auction, including one block in the 800 megahertz frequency band. If KPN fails to do so, it could weigh on KPN' s share price near term, JP Morgan says. Still, it believes that the Dutch incumbent operator will emerge with its core attractions intact, including earnings growth, shareholder returns and valuation.

--- France Telecom (FTE) 1Q results --- (April 29)

MARKET EXPECTATIONS: France Telecom's first-quarter revenue is expected to drop slightly, in line with the company's guidance for 2010 revenue to be flat excluding regulatory impact. Still, earnings momentum remains difficult and analysts will be looking for signs that some of the more difficult markets such as Poland, the U.K. and Spain are improving.

MAIN FOCUS: Analysts will focus on subscriber additions, which are expected to be solid, especially in broadband, given the group's investment in commercial activities. Guidance will also be closely eyed and the group is widely expected to reiterate it EUR8 billion free-cash flow target for 2010 and 2011, despite an expected margin decline. Comments on market trends and M&A plans are also a key focus.

---Telecom Italia (TI) 1Q results--- (May 6)

MARKET EXPECTATIONS: Italian mobile arm TIM is expected to remain under pressure, with analysts forecasting a continued fall in first-quarter revenue. A turnaround in the mobile domestic business is not expected before the third quarter of the year. In its updated strategy plan, Telecom Italia predicted a fall of between 4% and 5% in 2010 domestic revenue. Analysts see Brazilian mobile posting improving revenue and profit in 1Q, as the turnaround plan there begins to yield results.

MAIN FOCUS: The market will watch out for any detail on the 2010-2012 plan implementation, which focuses on cost-cutting and debt reduction. Additional job cuts may also be in sight. Any update on Telecom Argentina's sale process will also be in focus, after Telecom Italia Chief Executive Franco Bernabe said he hopes to conclude the sale by 2010.

---Deutsche Telekom AG (DT) 1Q results---(May 12)

MARKET EXPECTATIONS: In 2009 Deutsche Telekom benefited from the first-time consolidation of Hellenic Telecommunications Organization SA, or OTE. For the first quarter 2010 this effect is limited to one month only, hence Citigroup expects sales to fall 1.7% on year. German mobile revenue and profit will be negatively impacted by the termination of a wholesale agreement with Telefonica SA's (TEF) O2 Germany. Sales in the struggling U.S. market are also expected to be down, albeit less sharply, according to JP Morgan. A year ago, Deutsche Telekom was forced to issue a profit warning on weak operations in the U.S., U.K. and Poland.

MAIN FOCUS: Deutsche Telekom is on track to achieve or even slightly beat its 2010 guidance, JP Morgan says. Deutsche Telekom said it will amend its guidance for the impact of the joint venture with France Telecom's (FTE) Orange in the U.K., and is expected to regain some lost momentum in the U.S. this year.

---Telefonica SA (TEF) 1Q results---(May 13)

MARKET EXPECTATIONS: Telefonica is suffering from softer demand in most of its markets especially in Spain where the economic downturn continues to be acute. Analysts will be eyeing mobile revenue and net adds for indications of the company's ability to hold onto market share. Analysts say the company is likely to have weaker revenue from Venezuela after the country's government devalued the bolivar last year.

MAIN FOCUS: Telefonica updated guidance last year and investors will be watching for indications about whether it remains on track to meet these expectations. Telefonica has pledged earnings per share of EUR2.10 for 2010 and revenue growth of between 1% and 4% compared with last year.

---BT Group PLC (BT.A.LN) 4Q and FY results--- (May 13)

MARKET EXPECTATIONS: BT is expected report an increase in earnings for the year ended March 31 due to further operational improvements and cost cutting. In February, the group forecast annual earnings before interest, tax, depreciation and amortization before one-off charges, specific items and costs associated with staff leaving the company, the key figure tracked by U.K. analysts, of around GBP5.7 billion from GBP5.55 billion a year earlier. It also flagged free cash flow of around GBP1.7 billion and capital expenditure of GBP2.5 billion.

MAIN FOCUS: Investors are keen to hear about the group's cost savings, revenue mix and thoughts on the outlook. The performance of its global services division will also come under the microscope on the back of its strong performance in the third quarter.

---Vodafone Group PLC (VOD) FY results--- (May 18)

MARKET EXPECTATIONS: Analysts expect Vodafone to report an increase in free cash flow for the 12 months ended March 31, as Chief Executive Vittorio Colao has made it one of his top priorities. In February, Vodafone raised its free cash flow range by GBP500 million to between GBP6.5 billion and GBP7 billion compared with GBP5.7 billion a year earlier. The group also sharpened the range of its full year adjusted operating profit view to between GBP11.4 billion and GBP11.8 billion, from its previous guidance range of between GBP11 billion and GBP11.8 billion. That compares to GBP11.8 million in fiscal 2009.

MAIN FOCUS: The market will focus on service revenue in Europe following some early signs of stabilization as well as the group's performance in Turkey, India and South Africa. Any outlook comments from Colao will also be watched carefully, as will the crucial issue of when Verizon Wireless, a 45/55 joint venture between Vodafone and Verizon Communications Inc. (VZ) in the U.S., could resume paying a dividend. "The positives we see are the improving visibility of higher dividend distributions from the U.S., the likelihood of better growth in Europe, and the potential for market repair in India and the U.K. and also for turn-around in Turkey," Citigroup analyst Simon Weeden said in a recent research note.

-By Lilly Vitorovich, Dow Jones Newswires; 44-0-207 842 9290; lilly.vitorovich@dowjones.com

(Ruth Bender in Paris, Jason Sinclair in Madrid, Archibald Preuschat in Duesseldorf, Giada Zampano in Rome contributed to this article.)


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