'Black swan event': Telefonica Deutschland extends losses on lost Vodafone deal

1&1 AG

03/08/2023 14:41

(adds further analyst comments, updates share move)
    ** Shares in the German telecommunications provider
Telefonica Deutschland  O2Dn.DE  extend Wednesday's losses by
about 8% after rival 1&1  1U1.DE  ousted it from a 5G deal with
Vodafone  VOD.L 
    ** Telefonica's shares closed almost 18% lower on Wednesday,
touching their lowest since mid-March 2020
    ** Berenberg estimates that Telefonica Deutschland achieved
yearly about EUR 600 mln in revenues, EUR 450 mln in EBITDA and
EUR 220 mln in operating FCF from cooperation with 1&1
    ** It notes the news became a "black swan event" for the
company, although until mid 2025, 1&1 has contractual
obligations under the existing MBA MVNO/4G national roaming
agreement, which guarantees ongoing revenue streams
    ** In medium and long term, financial consequences for
Telefonica Deutschland are huge as about 40% of the company's
FCF will disappear, Berenberg adds
    ** HSBC downgrades the company to "reduce" from "hold,"
saying to mitigate FCF loss, it would need to decrease
capex/sales ratio to 9-9.5% of sales in the very short term
        ** "Winning new wholesale contracts to replace 1&1 would
plainly help, though we suspect other Mobile virtual network
operator (MVNOs) will be hugged tightly from hereon," it adds
  
        ** Barclays downgrades the stock to "equal weight" from
"overweight," lowering FCF forecast for 2028 by about 30%
  
    ** 1&1 and its parent company United Internet  UTDI.DE 
extend gains after Wednesday's, rising 6.1% and 7% respectively



 (Reporting by Amir Orusov)
 ((Amir.orusov@thomsonreuters.com))