Telcos underperformed the market by a very disappointing 15ppts in 2016. Positive themes for 2017 remain better top-line growth, cost cutting, operating leverage, valuation and dividends. We retain our Attractive industry view
Why did thesector underperform?Failed M&A (UK,France), regulation (BT Openreach, Enel fibre, Iliad Italy) and sector rotation (into cyclicals, Exhibit 3) drove underperformance (Exhibit 1). This was very disappointing, when considering better qtly results (Exhibit 43), EBITDA and DPS growth.
Four reasons why weexpect better performancein 2017.
1) Better revenue trends in fixed-line.
2) European mobile has finally turned positive (YoY growth).
3) Cost-cutting & operating leverage.
4) Compelling Euro Telco valuation and dividends. M&A could also re-surface as a theme (France, cable/mobile?). Cyclicals have outperformed defensive equities by 20ppts (YTD, Exhibit 3).