January 4, 2016
EQUITY RESEARCH GOing faster!
+39.02.83424007
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Subscriber growth accelerated after August… GO's subscriber growth in the first eight months of 2015 was lower-than-expected, with an average of 600 new active clients per month, and this was due mainly to the capacity constraints the Company experienced as permits for the installation of new 100 Mbps base stations were obtained later-than-anticipated. With permits secured in mid-year and new base stations installed, GO accelerated its client acquisition to an average of 863 new active clients per month during the Sept-Nov period. We now expect GO to close 2015 with 31.5k active clients, with a 36% yoy increase. The acceleration in subscriber growth is forecasted to continue throughout 2016 and we foresee 45k active clients by YE2016. GO's churn rate is still at 4%.
Better quality for clients, higher per-base-station capacity for GO… GO had previously announced the agreement with its commercial partner Huawei regarding the supply of 4G-LTE base stations for a 4-yr period. Thanks to the installment of this new equipment, GO now offers a broadband connection up to 100 Mbps, which not only has better quality for clients but also enables the operator to increase the subscriber capacity per base station --up to 2.5times as much--. GO also secured an agreement in July 2015 with Italy's EI Towers, the independent tower company, to utilize the strategically well-positioned sites to install its base stations.
ARPU has been €16.2 (ex-VAT) per month in 1H2015, slightly lower than the 2014 average, however still strong and is destined to grow further in 2016E. We expect ARPU to improve in 2H2015 and especially in 2016E due to: a) new clients purchasing the new €24.99/month service for the 4G-LTE connection, instead of the
€19.99/month standard package for 7Mbps, and b) early subscribers, who enjoyed special discounts throughout 2013, re-contracted throughout 2015 with a new 2-yr plan at full service prices. We expect 2015 overall ARPU to reach back to the 2014 level until year-end and 2016 ARPU to grow by 3%yoy reaching €17.
Market Data: | |
Price (€) | 2.57 |
Market Cap (€/mn) | 15.37 |
Free Float (%) | 30.3% |
52 Wk. High/Low € | 2.45-4.08 |
Avg daily volume-90day | 15,433 |
Share out. (mn) | 5.99 |
Price Change (%): 1y | -13.60 |
New funding is programmed to be utilized for network deployment as well as to evaluate any potential opportunities to expand geographically. GO has been reinvesting its operating cash flow, together with the IPO proceeds collected in 2014, in network deployment. It has a net debt position of €5.2mn by 1H2015-end and we expect an additional CAPEX of a total of €7mn throughout 2016 and 2017. The Company recently announced its plan to raise €8mn: €4mn via rights issue and another
€4mn via convertible bonds. This funding will not only help realize the investments to keep up with the planned growth, but will also help GO evaluate the opportunities in new regions because the much-awaited AGCOM auctions for an additional 200 MHz of spectrum --b/w 3.6-3.8 GHz-- for fixed wireless and LTE operators are expected to be held soon in 2016.
GO is a well-positioned (#1 where it operates) regional player in Italy's fast-growth fixed wireless broadband industry. With increasing expected returns (2016E and 2017E ROCE at 10% and 17% respectively) and 2016E-2017E EV/EBITDA multiples that are at an average 14.3%-27.8% discount to peers, we continue to rate the shares undervalued (+40.5% upside to current stock price).
€ thousand | Revenues | EBITDA | EBITDA Margin | EBIT | Earnings | Net Margin |
2012 | 1,321 | -605 | n.m. | -1,114 | -934 | n.m. |
2013 | 2,674 | 887 | 33% | 103 | -100 | n.m. |
2014 | 3,949 | 1,425 | 36% | 316 | 7 | 0% |
2015E | 5,432 | 2,111 | 39% | 349 | 50 | 1% |
2016E | 7,822 | 3,341 | 43% | 1,336 | 713 | 9% |
2017E | 10,768 | 4,927 | 46% | 2,862 | 1,743 | 16% |
Source: Company data, KT&P estimates
KT&Partners Srl
Via della Posta, 10 - Piazza Affari, 20123 Milano - Italy Tel: +39.02.83424007 Fax: +39.02.83424011
segreteria@ktepartners.com
Graph 1: Market Shares in March 2015, with YOY difference in market shares
70.0
60.0
60.0
50.0
40.0
%
30.0
20.0
10.0
0.0
13.3
10.510.0
2.0 0.43.9
Telecom Italia
Wind Fastweb Vodafone Tiscali BT Italia Altri
+2
-2.1 -0.2
0
-2
+0.9 +0.5 +0.1 +0.8
Source: AGCOM
Having witnessed the success of Italian wireless broadband operators in the last 4 years, AGCOM, the Italian state communication authority, decided to auction new spectrums in an attempt to increase the country's broadband coverage. The additional 200 MHz of electro-magnetic spectrum between 3.6 and 3.8 GHz is expected to be auctioned in 2H2016 using two different methods: a) auctions in highly-populated/urban areas, and b) beauty contests in digital divide/rural areas. We see GO as a perfect fit for the beauty contests as the Company proved to be the cost leader in LTE network deployment, which would be a competitive advantage in such contests. In regions where they see opportunity, the management announced its interest to bid in the auctions for urban areas as well, thanks to the newly proposed funding.
By the end of 1H2015, GO's base stations reached 645 (from 484 in YE2014) and we expect to see an additional 75 base stations installed in 2H2015. The new 100 Mbps base stations have up to 2.5times as much subscriber capacity compared to the previous 7 Mbps base stations and this will help speed up the subscriber growth significantly throughout 2016. Our expected active subscriber estimate is 45k by YE2016 and 58.5k by YE2017.
Table 1: GO's Revenue Generation between 1H2015 to 2017E
1H2015 | 2015E | 2016E | 2017E | |
Period-end subscriber | 27,013 | 31,500 | 45,000 | 58,500 |
Average subscriber | 25,066 | 27,309 | 38,250 | 51,750 |
ARPU | 16.23 | 16.47 | 16.97 | 17.31 |
Overall turnover | 2,474 | 5,432 | 7,822 | 10,768 |
Source: KT&P estimates
3.5 GHz technology.
Graph 2: Growth of data versus voice in mobile communication
50
45
40
35
30
23.8
25
20
15 43
10
5
0
26.8
60
31.5
78
38.7
106
45.1
158
180
160
140
120
100
80
60
40
20
0
Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
SIM with data traffic (mn) Data traffic (petabyte)
Source: AGCOM
€ thousand | 2014 | 1H2014 | 1H2015 | 2015E | 2016E | 2017E |
Total Sales | 3,949 | 1,826 | 2,529 | 5,432 | 7,822 | 10,768 |
Sales growth | 48% | 45% | 38% | 38% | 44% | 38% |
Service and other Costs | -1,780 | -861 | -1,243 | -2,448 | -3,526 | -4,854 |
Personnel Costs | -744 | -341 | -419 | -872 | -955 | -987 |
EBITDA | 1,425 | 624 | 867 | 2,111 | 3,341 | 4,927 |
EBITDA Margin | 36% | 34% | 34% | 39% | 43% | 46% |
EBIT | 316 | 118 | 220 | 349 | 1,336 | 2,862 |
Net Income | 7 | -63 | 21 | 50 | 713 | 1,743 |
Source: Company data, KT&P estimates
GO's EBITDA margin in 1H2015 was at 34%, flat as 1H2014. EBITDA per subscriber remained strong at € 71 and is expected to grow further with the increasing improvement in the margins, to € 77 in 2015E and € 87 in 2016E.
GO internet S.p.A. issued this content on 2016-01-04 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 2016-01-07 10:50:05 UTC
Original Document: http://www.gointernet.it/public/File/GOinternet/InvestorRelations/Coperturaanalistifinanziari/2016/01.KT&Partners_GOInternetEquityResearch.pdf