Telefonica Earnings: Raises Guidance Fueled by Germany and Brazil; Spain Stabilizes

Narrow-moat Telefonica upgraded its full-year guidance after a good set of results supported by growth in Germany, Brazil, and the U.K., and stability in the Spanish market. Management now expects 4% and 3% growth in revenue and EBITDA, respectively, compared with low-single-digit growth previously. Growth in operating expenses remained in check (2.3% year-over-year growth compared with 5.4% growth in the first quarter) as personnel and supply costs have moderated. Telefonica has executed several pay rises across its portfolio in recent months, but this has been offset by cost reductions in other expenses. Spanish inflation has declined sharply to 1.6% in June 2023, one of the lowest in the European Union, which should help Telefonica with indexation of personnel expenses entering 2024. We are maintaining our EUR 4.90 fair value estimate.