European Telecom Services: A fresh look for a new era
We have taken a new in-depth look at the Belgian telecoms market as it enters a new era following Mobistar’s convergence launch and Telenet’s completed purchase of BASE. We have become positively biased towards the Belgian market following the recent mobile consolidation, and among Belgium’s three listed mid-cap stocks we see material upside potential for Mobistar (Buy, EUR 26.5 TP) and prefer it to Proximus (Neutral, EUR 31 TP) and Telenet (Neutral, EUR 52 TP).
Convergence: Each can take market share on its own merits
We believe Proximus' well-invested fixed & mobile networks, and Telenet's quality proposition should enable them to add subscribers. Our in-depth assessment of Mobistar’s new cable-based convergent product leads us to believe that it can build market share to 4-5% and that this will expand its addressable market for adding more lucrative post-paid mobile subscribers.
Mobile: Fundamentals can drive top-line growth, despite headwinds
We think the seeds have been sown for an acceleration of Belgian mobile data usage and believe that the relatively benign market structure should enable the operators to successfully monetise this increased demand. We believe Mobistar is most geared to this trend given its mobile revenue exposure.
Quality: Regulation raises standards in Belgium but Telenet still on top
We expand our sector-wide ‘quality’ analysis and find that it plays an especially interesting competitive role in Belgium compared with elsewhere. Our assessment of a number of factors suggests that the operators have sensible strategies, with none having yet tipped towards diminishing returns.
Investment & returns: Well-invested networks and appropriate plans
Our detailed analysis gives us confidence that Belgium’s fixed and mobile networks compare well against their European peers. We think that Mobistar (and Proximus) should be able to maintain a degree of mobile network leadership while Telenet makes catch-up investments into BASE.
M&A: Controlling owners seem steady; VOO could shake things up
M&A does not play a core role within our investment theses, but we have made qualitative assessment of several potential scenarios and the potential impact on market dynamics. Separately, we do not foresee any near-term shift in the controlling shareholders’ (Orange in Mobistar, Liberty Global in Telenet or the Belgian state in Proximus) positions.
Our analysis suggests that Mobistar is best positioned across most themes, and we upgrade it to Buy (from Neutral) with a EUR 26.5 TP (34% upside potential). We also upgrade Proximus to Neutral (from Reduce) with a EUR 31 TP (vs EUR 32 previously) and retain our Neutral rating on Telenet while reducing our TP to EUR 52 (vs EUR 60 previously).