Swisscom Earnings: Stable Beginning of the Year; Guidance Unchanged

Narrow-moat Swisscom’s SCMN revenue decreased by 0.3% in the first quarter, to CHF 2,747 million, with EBITDA increasing by 2.4% to CHF 1,163 million, although most of this increase was explained by an accounting reconciliation of pension costs (otherwise, EBITDA growth would have been flat). Management left its 2023 guidance of CHF 11.1 billion to CHF 11.2 billion revenue and CHF 4.6 billion to CHF 4.7 billion in EBITDA unchanged. We are maintaining our CHF 440 fair value estimate, with shares being significantly overvalued, trading in the CHF 600 range. The board intends to distribute a CHF 22 dividend per share, which has been stable now for 12 years thanks to the stability of the Swiss market and acceptable capital allocation.

Service revenue in Switzerland declined by 1.2% because of some competitive pressures in both mobile and fixed-line services. Although Switzerland is a stable telecommunications market, Swisscom has seen some pricing pressures in the lower-end of the market for several quarters now. Slight reductions in personnel expenses helped hold EBITDA flat in Swtizerland. Swisscom has negotiated a 2.6% salary increase with its workforce, but this will only kick-in from the second quarter onward. In Italy, although the Fastweb division lost 3% of broadband subscribers, this was offset with share gains in mobile and an uplift in average-revenue-per-user, thanks to fixed-mobile convergence. Fastweb revenue increased by 5% year-on-year, while EBITDA grew by 2%.