KPN Earnings: Inflation Bites, but 2023 Guidance Is Reachable

Narrow-moat KPN’s KPN service revenue grew by 1.2% organically while EBITDA after leases fell 1.6% year over year largely on higher inflation costs. Total operating expenses increased by 4.4% in the first quarter, largely due to higher energy costs, which increased by almost 20%. Personnel and IT expenses fell by 1.3% and 4.7%, respectively. Despite the higher costs, KPN remained confident it can reach its 2023 EBITDAaL guidance, which aims for EBITDAaL of EUR 2.4 billion, flat compared with 2022. The 2023 guidance of flat EBITDAaL looks reachable to us, considering KPN has historically done a good job at keeping costs under control. We will continue to monitor EBITDAaL and cost performance through the year, and we are maintaining our EUR 3.00 fair value estimate, with shares being slightly overvalued at this point. We recommend KPN to dividend investors looking for an attractive, but maintainable, dividend yield thanks to the stability of the Dutch market and a strong focus on cost controls.

In consumer, mobile service revenue growth was offset by higher competition in fixed-line service, a narrative we also heard last quarter due to higher promotional activity. This led to a modest increase of 0.6% in consumer revenue. KPN’s fixed-mobile household base declined by 3,000 to 1.52 million, compared with an increase of 1,000 last quarter. KPN added 85,000 households to its fiber-to-the-home footprint, now covering 51% of households in the Netherlands. The 3.5 GHz Dutch spectrum auction is expected to take place in the fourth quarter of 2023.