Report

Swisscom delivered results for Q1-23 in line with expectations and in addition reiterated its guidance for 2023 and its target dividend per share of CHF 22.00. Group sales were pretty much flat yoy and in line with expectations with CHF 2.75bn, yet it was a slight increase of 0.6% at constant exchange rates (cc). While the Swiss business suffered, the other business areas made up for it in revenue. Group EBITDA went up by 2.4% to CHF 1.16bn (+3.0% cc), as margins improved from 41.3% to 42.4%. While EBIT even improved by 4.4% to CHF 573m, net income actually fell by 1.1% to CHF 442m, as the financial result deteriorated. All three levels were in line with estimates as well. Only EPS, despite decreasing by 1.2% to CHF 8.53, was around 2% better than analyst forecasts. Still free cash flow more than tripled to CHF 209m. To be able to fulfill its promises and to grow going forward, Swisscom invested CHF 545m in Q1-23, an increase of 4.4% yoy. The company continues to plan for fiber-optic coverage in Switzerland of 55% by 2025 and 70% to 80% by 2030.

Within its Swiss core business revenue declined by 0.6% to CHF 2.04bn as its telecoms services sales fell by 1.2% to CHF 1.35bn, while IT services with business clients increased by 0.7% to CHF 291m. The telecoms services business suffered from lower connections across all areas except for mobile connections which saw a small increase. This is driven by business customers as the residential business even saw an increase in Q1. Fastweb saw an increase in sales of 0.7% to CHF 619m, or 4.7% in local currency terms as the customer basis and connections grew. On an operating profit level costs within infrastructure and support functions fell, which resulted in an overall improvement of operating income, making up for the weaker result within business customers. In addition, Fastweb saw declining operating income as expenses to fuel growth went up.

The management of Swisscom confirmed its outlook for the year as well as its plan to continue to payout a dividend per share of 22.00.

Valuation

Swisscom currently trades at 18.4x P/E 23E, above its 5-year historical average of 17.2x and above the MSCI Europe Communication Services Index (14.7x). On an EV/EBITDA basis, the stock is trading at 8.1x, in line with its 5-year average of 8.0x and above the MSCI Europe Communication Services Index (5.9x).

Conclusion

Swisscom delivered no surprises for Q1-23 as every single line item was as expected. Far more importantly the company sticks to its guidance for 2023, including the dividend. While investors are especially interested in the dividend and the current yield of around 3.6%, the valuation of Swisscom improves. We reiterate our buy recommendation.  

Management Outlook

The company expects net revenue of CHF 11.1 to 11.2bn and EBITDA of CHF 4.6 to 4.7bn for 2023. If, Swisscom can achieve these targets the dividend per share will be CHF 22.00 for FY-23.