Analyse aandeel KPN

De verkoop van E-Plus maakt KPN financieel gezonder, maar maakt de onderneming kleiner en meer afhankelijk van de Nederlandse markt. Daar worstelt KPN om te kunnen groeien. (Engelstalig rapport)

Allan C. Nichols, CFA 02 oktober, 2014 | 8:59

INVESTMENT THESIS

KPN is the incumbent telecom operator in the Netherlands, where it's struggling to grow. However, it is having some success in new ventures, particularly its television service. Importantly, the firm just sold its E-Plus division in Germany to Telefonica for EUR 5 billion ($6.3 billion) in cash plus 20.5% of the combined firm, which significantly strengthens its balance sheet. However, this shrinks the firm and makes it all the more dependent on the Netherlands.

Increased competition and changes in customer behavior have pressured KPN's sales in its home country. Its consumer fixed-line business has been shrinking rapidly for years, as cable competition has been particularly strong in the Netherlands. However, the firm is having some success bundling television services with its phone business. This has worked especially well in areas where the cable firms still only have analog service. Providing the Spotify music service free to premium customers has also been a successful marketing tool. KPN now has about 26% of the digital pay television market in the Netherlands. It is also rolling out fiber to increase broadband speeds to help it compete. The wireless business has struggled as the firm has steadily lost prepaid subscribers since peaking in the first quarter of 2009. KPN has intentionally focused on higher-end subscribers at the expense of market share. This has spawned an increase in data usage, which has helped offset declines in voice pricing. However, the company was slow to offer bundles of voice, text, and data. Customers are increasingly communicating via alternatives to texting, such as WhatsApp, instant messaging and Facebook, which has also hurt revenue. While management projects the Dutch business will have stabilized by the end of 2014, we are more skeptical.

KPN's information and communications technology business has struggled as well. Despite selling off much of its international and lowest-margin operations, it continues to lose revenue and generate low margins. The international carrier business, iBasis, and its Belgian business were generating growth, but even these have struggled recently.


VALUATION

Economic Moat   Fair value   Stewardship Rating   Telefoon
Narrow   EUR 2.40   Poor  
Moat Trend   Uncertainty   Sector  
Negative   High  

Communication Services



BULLS

  • KPN sold its German business to Telefonica for EUR 5 billion in cash and 20.5% of the combined company, which significantly strengthens its balance sheet and allowed it to reinstate a dividend.

  • Management expects the Dutch business to stabilize by the end of this year with free cash flow actually increasing in 2015, not counting any potential dividend from a combined Telefonica Deutschland/E-Plus company.

  • The firm has about 26% of the digital pay television market in the Netherlands thanks to successfully bundling this service with its telephone and broadband offerings.

 

 

BEARS

  • After discontinuing its stock buyback early in 2012, KPN slashed its 2012 dividend to EUR 0.35 per share with its second-quarter results and then eliminated the final 2012 dividend, as well as its 2013 dividend.

  • America Movil dropped its offer to acquire KPN after an independent foundation exercised its rights to block the deal by being issued preferred shares giving it almost 50% voting rights.

  • The Central Works Council has the right to recommend one third of the supervisory board. Its representatives may be more concerned about employment issues than the company's success.


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Effecten genoemd in dit artikel

Naam effectPrijsChange (%)Morningstar Rating
Deutsche Telekom AG15,38 EUR0,85
Koninklijke KPN NV2,85 EUR0,81
NTT DOCOMO Inc ADR25,90 0,02
Orange SA14,25 EUR1,53
Proximus SA26,73 EUR1,75
Telefonica SA6,91 EUR0,00
Vivendi SA24,94 EUR-0,64

Over de auteur

Allan C. Nichols, CFA  Allan C. Nichols, CFA, is a senior stock analyst and international investing specialist with Morningstar.