Zurich – Swisscom delivered a relatively resilient set of results and continues to manage sector threats well compared to peers. A rebasing upwards of capex expectations is mainly driven by higher domestic fibre investment, where we see a clearer path to future returns compared to EU peers (high market share and cost sharing).
From Barclays Capital, European Telecom Services
Indeed our detailed analysis of fixed ABC (access, broadband and calls) highlights continued improvement for Swisscom in 4Q whilst mobile trends are stable sequentially. We continue to rate Swisscom 1-OW, TP: CHF420 (from CHF450). Capex conundrum. We see the rationale behind higher domestic capex in the long term in terms of protecting market share and pricing power. And indeed argued in our recent sector note (Addicted to dividends, 8 December) that EU incumbents face reinvestment and pressure on dividends. However, near term FCF downgrades mean Swisscom now has mid term dividend payout of c65-80% of FCF assuming no growth but crucially on lower net debt/EBITDA at 1.8x versus EU peers at over 2.0x.