Swisscom Earnings: Strong 8% EBITDA Growth Due To Cost Reductions; Maintain FVE

We are pleased with narrow-moat Swisscom’s SCMN second-quarter results as it managed to grow EBITDA by an impressive 8% despite flat revenue growth year over year (down 0.4%). Indirect costs, mainly labor, IT, advertising, and other expenses have been reduced by 8.5% year over year with almost no effect on subscriber numbers, lifting EBITDA. This has allowed Swisscom to maintain prices for its core products, which we believe helped it keep subscribers. We believe Swisscom is on track to achieve 2023 guidance of CHF 4.6 billion to CHF 4.7 billion in EBITDA and our CHF 440 fair value estimate remains unchanged.

In the wireless market Swisscom gained 42,000 lines (up 0.6%) mainly from postpaid customers, with the latter having higher prices than prepaid lines. Swisscom said it plans to moderate promotional activities in the next two quarters and be more selective, something we like as Swisscom is perceived as the highest-quality brand in the country. Salt, Switzerland’s third telecom operator by market share and owned by Xavier Niel, also the owner of Iliad, recently announced a 3% price rise in some of its mobile offerings, which we hope will contribute to the overall health of the market. However, promotional activities on second-tier brands has remained intense. In the broadband segment, Swisscom lost 14,000 lines and had 2.01 million lines at the end of the quarter. Last, in Italy Fastweb had flat revenue growth and EBITDA grew by 2% on an adjusted basis. Swisscom couldn’t make the same cost reductions in Italy compared with Switzerland, given the Fastweb business is in a less mature state and still trying to gain market share.