Swisscom Reports a Q2 With Nothing Unexpected

Narrow-moat Swisscom sales declined by 1.6% year over year in the second quarter, mainly affected by the loss of a mobile virtual network operator in its wholesale network, and by lower backhaul volumes. The residential segment remained relatively stable, with a 0.4% sales decline due to price and overall competitive pressure, especially in the mobile business. Swisscom recently introduced its “blue" subscription packages, which aim to simplify product offerings in all segments and reduce churn, with 51% of customers already migrated. The business segment grew by 1.9% on the back of easy comparable figures last year. Group EBITDA declined by 11.7% in the quarter mainly because of CHF 82 million in legal provisions taken. Had this provision not been taken, EBITDA would have seen a decline of 1.7%, in line with revenue. Although Swisscom has done a good job in reducing direct costs of services, inflationary pressures in personnel and energy costs have offset any gains, resulting in a 160-basis-point contraction in EBITDA margins to 39.9%. Management maintained its outlook for 2022, which aims for flattish revenue, EBITDA, and capital expenditures. We are maintaining our CHF 470 fair value estimate and see the shares as overvalued at this point.