Santander Corporate & Investment | In 1Q19, MasMovil (MAS) registered 140,000 new net subscribers in fixed broadband (compared to expectations of less than 100,000 for the entire market) and the trend in 2Q19 remains solid, considering fixed ports, suggesting no less of 100,000 net connections in 2Q19 and implies a risk of upward deviation for the scenario that we handle of 350,000 net connections in 2019E.
Our basic scenario is that Euskaltel will focus its expansion on the mid-range segment (Orange and Vodafone brands) and it will also affect reasonable price brands (O2, Jazztel, Yoigo), so it is possible that we will see a limited impact on the perspectives of MásMóvil. The attractive pricing of MásMóvil and customer satisfaction continue to be the key drivers of its growth. Its strong commercial activity (market share of c.20% E in gross connections vs. a market share of fixed broadband customers of 7.5% E) offers visibility for further growth.
Income growth amplified by operating leverage
MásMóvil has set as its goal an FTTH network (fiber to the home) of 9 million owners (or mutualized), which would allow the company to amplify the growth of revenues in the EBITDA heading, as well as improve the returns on the capital employed The acquisition of low frequency spectrum (ie, in the 700MHz band by 2020) would be an additional factor of operating leverage, MasMovil is implementing an efficient (but not light) investment model, and the recent network transaction, with the sale of a network of 0.93 million households covered by 217mn euros and the purchase of 1.0 million mutualized homes for 70mn euros, is a good example.
Given the growth profile of MasMovil, we believe that the publication of quarterly results and the key indicators of commercial performance (mobile ports and monthly data of the regulator of the telecommunications market in Spain) will be the main catalysts.
The company’s price is not reflecting the growth outlook (annual growth rate composed of EBITDA of 23.7% E in 2018-21E). Our current estimates imply that MasMovil is trading at a very attractive 11.7% cash flow attributable to shareholders (FCFE) yield. It should also be noted that the company has practically eliminated the risk of overstocking shares after repurchasing the Providence convertible bond, at the cost of increasing its leverage (we estimate that MásMóvil will reach 3.8x the net debt / EBITDA ratio in December 2019E but will will have been placed at 2.2x for December 2021E).