Bankinter | Telefónica (TEF)’s first quarter 2022 results beat forecasts and the group has maintained its guidelines for the year. In organic terms, revenues (+3.2%) and OIBDA (+2.1%) continue to show positive growth for the fourth consecutive quarter.
Spain remains the market with the most competitive pressure, leading to a drop in OIBDA. However this is offset by greater strength in the rest of the group’s key markets. The OIBDA margin improved to 34% vs 33% in Q1 2021; and greater operating efficiency has compensated for inflationary pressure on the costs’ side.
The appreciation of the Brazil real (+17.2% in the quarter) contributed to reported growth in Revenues of 18.1% in Brazil. The results leave the group in position to meet their targets for the year: “low one-digit growth” in Revenues and OIBDA. From the market’s point of view, the current environment is somewhat more favourable for the sector; it increases the possibility of consolidation and moderation in the level of competition. (The distribution of Oi’s assets amongst the 3 remaining operators in Brazil and possible merger deals in Italy, Spain and the UK). Furthermore, the market is more propitious for companies with moderate multiples and a high dividend yield (6.3%, plus the planned reduction in the number of shares in circulation of 2.41% of capital).
We raise our recommendation to Buy from Neutral and Target Price to 5.3 euros/share (vs previous 4.5 euros).