Telefonica Brasil did not correctly reflect incentives in its registers

Alphavalue | Telefonica´s poor figures for Q119, published by the Spanish telecoms company last week, traded with falls of 31%. Sales of 11.98 Bn€ › 11.81 Bn€ estimated by the consensus. Our analysts highlight that the operator improved income in all the geographic areas where it is present, especially in Spain and Brazil, its two main markets.

Underlying OIBDA 3.73 Bn€ ‹ 3.75 Bn€ estimated by consensus. Margin OIBDA 35.6% › 31.7% a year ago. Net profits 926 M€ +10.6% yoy › 787.2 M€ estimated by consensus. They confirmed guidance and dividend. The company its debt for the eighth consecutive quarter, to 40.381 Bn€ -5.7%. In addition the group explained that, including events after the close of the quarter, the debt has been reduced by an additional 1.7 Bn € to 38.7 Bn€.

These debt figures are better than expected. In addition, the SEC has commented that Telefónica Brazil has not sufficiently reflected incentives in its registers, which has prevented it maintaining an efficient system of accounting controls and contravened the federal Foreign Corrupt Practices Act (FCPA), for which it must pay a 4.13 M$ fine. At less than 6X its EBITDA and with a current return per dividend of 5.6%, the shares offer a certain potential, but there is no short term catalyst. This publication will have no significant impact in our forecasts for 2019. On the other hand, the company´s German subsidiary is having recourse to the German debt market to seek funds. The operator raised its loan from 150 to 360 M€ because of high demand.