Strong Subscriber Growth Lifts Telefonica’s 1Q17 Earnings

Strong Subscriber Growth Lifts Telefonica’s 1Q17 Earnings

 
Last month, Spanish telecom giant Telefonica SA (NYSE: TEF) reported a 5% increase in the fiscal 2017 first-quarter income, compared to the similar period last year. The net profit for the period increased 42.2% on y-o-y basis. However, the organic operating income missed analysts’ estimates. That deterred the stock’s appreciation. However, we expect a rally to begin soon due to reasons mentioned below. The stock of Telefonica last traded at $11.31 in the NYSE.

The Madrid-based company reported 1Q17 revenues of €13.13 billion, compared with €12.51 billion in the same period last year. The first-quarter 2017 profit attributable to equity holders increased to €779 million, from €548 million in the first-quarter of 2016. On a per share basis, earnings increased 48.8% to €0.14, from €0.09 last year.

Excluding depreciation and amortization charges, the operating income of €4.02 billion in the quarter ended March 2017 was higher than €3.84 billion reported in the year-ago quarter, but lower than analysts’ estimates of €4.06 billion.

Segment wise Telefonica Latin America reported impressive revenue growth. Revenues from Brazil jumped 30.2% y-o-y to €3.165 billion. In the Hispano-American markets, revenue was €3.29 billion, up 7.6% on y-o-y basis. In Latin American markets, Telefonica competes with large telecom operators such as AT&T and America Movil.

The Telefonica Europe reported a marginal increase in revenues. Revenues from Spain, which is the largest market for the company, increased 5% y-o-y to €3.07 billion.

As of March 31, 2017, total customer access lines stood at 346.8728 million, down 0.1% y-o-y. However, mobile access increased 0.8% y-o-y to 274.0556 million customers. Likewise, on a y-o-y basis, internet and data access grew 0.7% to 21.6578 million users. The number of LTE customers jumped 72% y-o-y to 75.4588 million and represented 29.1% of total mobile accesses. Similarly, Fiber and VDSL subscribers increased 20.8% y-o-y to 9.5806 million.

Net cash flow from operations increased 24.3% y-o-y to €2.743 billion. Free cash flow after dividends, was €74 million in Q1 2017, compared with a negative €658 million posted in Q1 2016. Cash and cash equivalents at the end of March quarter was €7.39 billion, an improvement from €2.813 billion reported in the prior year similar period.

Net financial debt at the end of first-quarter was €48.77 billion, a decline of 2.6% on y-o-y basis.

Telefonica announced that it continues to expect FY17 revenues to remain flat compared to FY16 revenues. Thus, considering the strong growth in revenues, an increase in mobile access customers, and reconfirmation of FY17 revenue guidance, we expect the stock to remain bullish.

The historic price chart indicates consolidation of the stock at 11.0 levels for the past two months. The MACD indicator is moving above the zero line, while the money flow indicator is rising. Furthermore, the stock is trading above its 50-day EMA (exponential moving average). Thus, technically a rally is expected soon.

Telefonica - Technical Analysis - 6th June 2017

In order to ride the trend, we would like to invest in a high or above option contract which expires on or around June 14th. To limit risk, we wish to make a bet when the stock of Telefonica trades near $11 in the NYSE.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.


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