T-Mobile Netherlands: 3 scenarios for value creation, annual return 25% at base case

Three scenarios for value creation in the takeover of T-Mobile Netherlands, based on a number of assumptions:

• TMNL's 2021 results
• Not paying taxes.
• Not paying dividends, instead reducing debt.
• Slowing revenue growth; EBITDA growth 2x revenue growth (margin expansion); Capex growth 0.9x revenue growth (Capex-to-Sales declining).

Three scenarios:

• Base case: return CAGR 16.5%. FCF generation is insufficient to prevent a multiple contraction. The enterprise value increases from EUR 5.1 to 5.5 billion.
• Stable multiple case (8.0x): return CAGR 25.3%. EV increases from EUR 5.1 to 8.1 billion.
• Expanding multiple (to 11.0x): return CAGR 32.2%. EV grows from EUR 5.1 to 11.1 billion.
  

(EUR millions)	2021	2022	2023	2024	2025	2026	2027
LBO debt redux scenario 1: multiple contraction
Revenue	2071	2175	2283	2375	2470	2544	2620
rev growth (%)		5%	5%	4%	4%	3%	3%
EBITDA AL	634	697	767	829	895	948	1005
EBITDA growth (%)		10%	10%	8%	8%	6%	6%
EBITDA margin (%)	30.6%	32.1%	33.6%	34.9%	36.2%	37.3%	38.4%
Capex	274	286	299	310	321	330	339
Capex growth (%)		4.5%	4.5%	3.6%	3.6%	2.7%	2.7%
Capex/Sales ratio (%)	13.2%	13.2%	13.1%	13.1%	13.0%	13.0%	12.9%
Oper FCF	360	411	468	519	574	619	667
Oper FCF/Sales ratio (%)	17.4%	18.9%	20.5%	21.8%	23.2%	24.3%	25.4%
Net debt	3750	3546	3282	2950	2554	2086	1554
Interest	156	147	136	122	106	87	64
Net FCF	204	264	332	396	468	532	602
Net FCF/Sales ratio (%)	9.9%	12.1%	14.5%	16.7%	18.9%	20.9%	23.0%
Net FCF cumulative	204	468	800	1196	1664	2196	2798
Equity value	1350	1614	1946	2342	2809	3342	3944
CAGR							16.5%
Enterprise value (EV)	5100	5160	5227	5292	5363	5428	5498
EV/EBITDA (x)	8.0	7.4	6.8	6.4	6.0	5.7	5.5
LBO debt redux scenario 2: multiple stabilisation
EV/EBITDA (x)	8.0	8.0	8.0	8.0	8.0	8.0	8.0
Enterprise value (EV)	5100	5610	6171	6665	7198	7630	8088
Equity value	1350	2064	2889	3715	4644	5544	6533
CAGR							25.3%
LBO debt redux scenario 3: multiple expansion
EV/EBITDA (x)	8.0	8.5	9.0	9.5	10.0	10.5	11.0
Enterprise value (EV)	5100	5928	6904	7871	8948	9959	11059
Equity value	1350	2382	3623	4921	6394	7873	9505
CAGR							32.2%

Week 14 in Telecoms, Internet, Media

CORPORATE

• KPN: WSJ: EQT & Stonepeak Infrastructure Partners plan offer, >3 EUR/share (>EUR 12.6b); preparing due diligence, offer spring 2021
• Orange BE (Orange 53%)
• Orange launches offer until 210423
• Degroof Petercam expert opinion: DCF equity value per share EUR 18.5 = 4.7x EBITDA 2020 = 5.1x adj EBITDA 2020 = 12.0x FCF (EBITDA - capex) 2020 = 13.0x FCF (adj EBITDA - capex excl spectrum) 2020; CCA (comparable company analysis): equity value per share EUR 21.0 at midpoint based on EV/EBITDA, EUR 17.2 based on EV/FCF (overall midpoint EUR 19.2)
• Iliad: Acquires 12% of Unieuro (retailer Italy) - Rumor: to launch fixed-line services in IT within weeks
• PPF: Considers European acquisitions in telecoms & media
• Virgin Media UK (Liberty Global): Plans GBP 10b investments in 5 yr for 5G & FTTP expansion (1.14 Gb/s); to add 1m fixed (FTTP) HP by YE 2021 to total 16m if merger approved (CMA to rule May 2021), to add 7m long-term fixed-line addresses if merger approved; could add wholesale services
• HMD Global (Nokia branded smartphone manufacturer) plans MVNO HMD Mobile in UK on EE (BT); from 6.50 GBP/mo for unlimited calls/texts + 1 GB data
• Microsoft: Rumor: plans offer for Nuance (speech-recognition tech; 7100 employees), 56 $/share = $16b (23% premium) 
• Twitter: Co-invests in ShareChat (social media, short video; India, 160m MAU), $502m with Snap, others at $2.1b valuation
• Box: Raises $500m equity from KKR via convertible & SBB (current equivalent 14%)
• Patreon: Raises $155m at $4b valuation

NETWORKS

FTTP

• T-Mobile NL (DT 75%, Tele2 25%)
• partners with ODF (Open Dutch Fiber; = KKR Global Infrastructure Investors Funds majority, DTCP Infra (DT Capital Partners) rest): to roll out OA FTTH (1-10 Gb/s, passive only) in urban & high dense areas; to avoid uneconomical overbuild; ODF to be led by founders Jordi Nieuwenhuis (Reggefiber co-founder) & Uwe Nickl (formerly Deutsche Glasfaser co-CEOs), Michael Griffioen CEO
• to launch 21Q2, fully funded, construction agreements in place, to invest >= EUR 700m (capex) for >= 1m lines in 5 yr
• T-Mobile NL anchor tenant with own active layer; 

5G

• T-Mobile US launches Home Internet (FWA over 5G or 4G, un-carrier move): 65 $/mo (60 with autopay); coverage 30m HH (o/w/ 10m rural), 50-100 Mb/s, possible throttling during peak hours - To hire 2500 hometown experts for T-Mobile Hometown retail stores
• Ucell (Uzbekistan) launches 5G in Tashkent

SERVICES

General data usage: AMS-IX New traffic peak 210407: 10.012 Tb/s

Video

• Sony: Distr deal with Netflix, 5 yr from 2022 (reported value >$1b): exclusive 18-mo window (replaces Starz (= Lionsgate) deal), first-look rights for Netflix for direct-to-streaming titles (2-3 films/yr), licensing deal for selected older films
• Comcast: Rumor: to merge film unit into Peacock
• CNN (WarnerMedia = AT&T): Considers standalone streaming service
• WarnerMedia (AT&T): Considers splitting new films slate into different categories from 2022: traditional theater release, day & date in theater & HBO Max
• Apple: Apple TV+ to focus on originals
• ViacomCBS: Considers bundling services (Paramount+, PlutoTV, Showtime, BET+)
• DAZN: Considers IPO

Music

• Spotify: Launches in-app voice assistant ("Hey, Spotify" wake word)

Web services

• Facebook: Trials Hotline (developed by NPE Team, public beta, led by Eric Hazzard of former tbh [see 171016]): Q&A with creators, audio-only or video [a la Clubhouse & Instagram Live]
• Reddit: Trials moderator-run voice chats [a la Clubhouse]

Hardware

• Amazon: Launches Ring Floodlight Cam Wired Pro, $250 (promo: 200): outdoor security camera with 3D Motion Detection, radar, Bird’s Eye View, 110db siren, color night vision

REGULATORY

• Google
• Noyb (Max Schrems) files complaint at CNIL (France) over user tracking in Android (using Android Advertising ID (AAID)) violating EU privacy law (ePrivacy Directive), urges investigation
• Filing in antitrust case led by Texas
• Google operated program (Project Bernanke) giving its own ad-buying system an advantage over competitors, amounts to insider trading [Google operates exchange, represents buyers & sellers and acts as ad buyer for Search, YouTube]
• commercial deal with Facebook (Jedi Blue, required Facebook to spend >= $500m in Google’s Ad Manager or AdMob auctions in year 4 of the agreement) enabled Facebook to identify 80% of mobile users & 60% of desktop users (excl users of Apple’s Safari web browser) in ad auctions 
• Platforms
• CMA (UK) launches Digital Markets Unit to oversee internet platforms
• Privacy: scraping abuse of social networks
• Facebook: Personal data of 533m users leaked online after scraping vulnerability in 2019 
• LinkedIn (Microsoft): Data leak of 500m users through scraping 
• Clubhouse: Scraping personal data exposes 1.3m user records 

Iliad to acquire Play - what's next?

Iliad is acquiring Play, the largest MNO in Poland. It secures 40.2% from current shareholders and makes a public offer for the remainder. Iliad also operates in France and Italy and holds a large stake in Eir (Ireland). Founder Xavier Niel (through NJJ) owns operators in Switzerland, Monaco and Cyprus.

The details:

• Iliad acquires 40.2% controlling stake (incl Board majority) from Kenbourne (Novator, 20.1%) and Tollerton (Panos Germanos, 20.1%) at 39.00 PLZ/share
• other shareholders: NN/OFE 5.6%, free float 54.%
• launches public offer: 39.00 PLZ/share cash (100% equity value EUR 2.2b, EV EUR 3.479b = 6.8x EBITDA AL TTM = 9.9x OpFCF TTM pre synergies), premium 39% over 200918
• acceptance period 201019-201117, settlement & clsoing 201125
• to be financed from cash & debt, leverage to rise pro forma from 2.2 to 3.2
• to continue spinning off & selling its passive infrastructure;
• 'Through this acquisition, iliad will cement its position as a pan-European telecom player'
• Iliad becomes #6 telco in Europe based on mobile subscribers (behind Vodafone, DT, Telefonica, Orange, 3 Group Europe)

More acquisitions appear to be a matter of time. The values Iliad/Niel appears to seek:

• Mobile centric, with an eye on expanding into fixed.
• Maverick character.
• Growth opportunities from either market growth or market share growth.
• Can do without passive infrastructure.
• Efficiency, simplicity.
• Developing hardware and services in-home.

Candidates:

• Spain: MasMovil (being acquired currently by private equity)
• Netherlands: T-Mobile
• Belgium: Orange
• 3 Group Europe (CK Hutchison), except 3 Ireland
• Digi/RCS&RDS
• PPF

Multiband auction Netherlands 200629-200721 raises EUR 1,232 million

Total

• 700 band available directly 703-733 paired with 758-788
• 1400 band available directly, 1452-1492
• 2100 band available from early 2021, 1920-1980 paired with 2110-2170
• all valid 20 yr until 401231
• total 26 blocks
• reserve price total EUR 914.668m, raises EUR 1.231717947b
• licenses to be delivered within 10 days
• coverage obligations: 98% of each muni, average 100 Mb/s, AT requires EMV limit of 28 V/m
• all bids to be published by 200728 at AT
• 3.5 GHz band auction early 2022

By MNO

• KPN EUR 415.8m
• "satisfied", "reasonable price relative to reserve price"
• total 75 MHz; 2x10 in 700 band for 158m for 5G; 3x5 in 1400 band for 95m for 4G & 5G; 2x20 in 2100 band for 163m for 4G & 5G
• VodafoneZiggo EUR 415.763924m
• "zeer tevreden"
• 2x10 in 700 band; 3x5 in 1400 band; 2x20 in 2100 band
• reaches 80% pops coverage with 5G in 1800 band, peak speed 650 Mb/s
• T-Mobile NL EUR 400m
• "zeer tevreden", "starting prices were too high"
• plans swift 5G launch, as soon as licenses received
• 2x10 in 700 band for 5G; 2x5 in 1400 band; 2x20 in 2100 band

Telecoms, Internet, Media - The news of week 20

Curated selection of the major news in Telecoms (mainly Europe), Media & Internet (global), as well as the main news from the Netherlands in telecoms and media.

Our main story this week was published on the Telecompaper website (in Dutch, an English translation may follow). It is a reflection on the state of broadband competition in the Netherlands, now that the market has been deregulated. There are two central themes:

1. KPN should stick to its original FTTP technology choice (point-to-point active ethernet), rather than switching to the somewhat cheaper PON-based variants next year. Sources tell us that T-Mobile filed an injunction against the change, but this fruitless in the deregulated market. The p2p technology allows for ODF access services, enabling wholesale customers to build their own nationwide active layer. Only this will guarantee equal competition between KPN Wholesale customers (lowering their opex considerably, but forced to make sizeable capex investments) and KPN Retail. At the same time, this would test challengers' true commitment to the market.
2. In exchange, KPN could allow co-investment by inviting T-Mobile's network investments partner(s) (currently Primevest) to buy into its network in exchange for a minority stake. This ties nicely into last night's Financial Times article, claiming that BT Openreach is looking for co-investors.

Telecoms - COVID-19 related - retail

• Telenet, Orange re-open shops, some staff return to office
• French telecom operators start re-opening retail stores
• Orange gradually reopens its stores in France
• UPC Poland re-opens shops
• Telia Estonia re-opens all its shops
• Vodafone to reopen offices and retail stores in New Zealand

Telecoms - COVID-10 related - traffic

• UK broadband networks are standing up to coronavirus pressures – Ofcom
• The lockdown live-streaming numbers are out, and they’re huge

Telecoms - COVID-19 related - metadata

• ETSI starts industry group on Covid-19 tracing app standards
• EU issues guidelines on interopeable tracing apps to support international travel

Telecoms - Q1 earnings reports

• Vodacom Group FY revenue rises 5%, subscriber base up by 6 mln
• Vodafone maintains div on underlying FY growth, sees lower EBITDA in new year
• QSC record small progress in revenues, EBITDA in Q1
• 1&1 Drillisch grows revenues in Q1, confirms outlook for 2020
• United Internet sees revenues grow, stable EBITDA in Q1
• Ceconomy posts Q2 loss as revenues hit by store closures
• Deutsche Telekom maintains FY growth outlook as Q1 sales grow 2%
• Magyar Telekom revenues stable at HUF 159 bln in Q1
• OTE grows revenues, EBITDA 4% in Q1
• Sunrise grows revenues in Q1 sees decline in EBITDA, net income
• Iliad posts 7% revenue growth in Q1 on slower equipment sales, service revenue up 10%
• Bouygues Telecom's EBITDA growth stalls in Q1, service revenues up 10%
• Inwit revenues up 8.5% to EUR 103 mln in Q1, EBITDA up 6%
• Retelit Q1 revenues double to EUR 34 mln following PA Group merger
• Eutelsat's underlying revenues down 1.6% in March quarter
• P4 lifts revenues 4% in Q1
• Cyfrowy Polsat Group revenues up in Q1 on wholesale expansion
• A3 says Q1 results show relative resilience to virus but businesses delay IT service projects
• Ice reaches positive adjusted EBITDA in Q1, foresees H2 EBITDA breakeven
• Masmovil adds 373,000 customers in Q1, confirms full-year guidance
• Turk Telekom revenues increase 17% to TRY 6.3 bln in Q1
• Telekom Slovenije Group improves margins on sales up 1% in Q1

Telecoms - capital markets

• Equinix starts USD 1.25 bln share offering to help pay for potential acquisition
• Equinix prices 2.25 mln shares offering at USD 665 per unit
• Siminn announces ISK 500 mln share buy-back
• Vodafone shows no interest in rival bid for Virgin Media
• Intelsat files for Chapter 11 protection to restructure debt
• WEL, Waipa sell Ultrafast Fibre stakes for NZD 854 million
• BT in talks to sell stake in Openreach - report
• BT denies reports of talks to sell multi-million pound stake in Openreach

Telecoms - 5G

• T-Mobile US 5G-600 network reaches 49 states (6k cities, 215m covered pops), to add Alaska May 2020
• Vodafone ES expands 5G-3500 to 6 cities, total 21
• RWTH Aachen Univ launches campus network, with Ericsson, for 5G research
• Sunrise 5G-3500 coverage reaches 535 cities; target 5G-700 coverage 90% 20Q3
• DNA (= Telenor) expands 5G to Rauma, Nummi, Paroalho etc (Satakunta), Pori (Hanhiluoto, Karjaranta, Kirjurinluoto etc); plans expansion to Lahti, Oulu, Jyväskylä, Kuopio, Vaasa, Hämeenlinna, Seinäjoki, Heinola, Pirkkala, Lempäälä
• NZ cancels 5G auction (3.5 GHz band) over corona virus; awards spectrum to Dense Air (40 MHz), Spark (60), 2degrees (60); NZD 250k per 10 MHz

Media - COVID-19 related - events

• U.K. Cinemas Won’t Reopen Sooner Than July 4, Government Confirms
• U.S. Theatrical Releasing Slowly Returning With 200 Locations Open
• Disney reopens its Shanghai theme park, with many restrictions
• Broadway Shutdown Extended Through Labor Day
• Hollywood Bowl Officially Cancels 2020 Summer Season
• Publicis Groupe Reveals Phased-In Office Reopening Strategy
• Omnicom's Three-Phase Return To Office Plan

Media & Internet - Q1 earnings

• Tencent Music Drops After-Hours on Disappointing Revenue
• Tencent lifts revenues in Q1 but profit growth slows amid pandemic
• Meredith Corp. Delays Release Of Earnings Report Amid 'Challenging' Environment
• Sony FY results down after weak Q4 due to Covid-19 disruptions
• Mediaset Q1 sales down 5% to EUR 682 mln, profit plunges 47%

Media & Internet - other

• Could Amazon be about to take over your local cinema? With Odeon's owner in trouble, deal could help tech giant shoot ahead in movie wars
• Telstra announces AUD 300 million Foxtel impairment following News Corp write down
• KKR buys 5.21% stake in ProSiebenSat.1
• Studiocanal Buys 100% of Tandem Productions, Rola Bauer Steps Down
• Facebook to buy Giphy for $400 million
• Justice Department, State Attorneys General Likely to Bring Antitrust Lawsuits Against Google
• Walt Disney Co. Plans Another Large Debt Sale To Further Boost Financial Position Amidst COVID-19
• Walt Disney Raises $11 Billion From Bond Sale to Bolster Finances

Internet - platforms

• Waymo raises $750m from T Rowe Price, Perry Creek Capital, Fidelity Management & Research etc
• AWS: order from TC Energy
• Launches Fire HD 8 tablet series (Fire HD 8, Fire HD 8 Plus, Fire HD 8 Kids Edition)
• Facebook settles over PTSD suffering for 11,250 moderators, to pay total $52m
• Facebook helped establish political advocacy group American Edge (non-profit)
• Facebook  Community Standards Enforcement Report
• Facebook ends Instagram Lite app
• Facebook's Libra Ass attracts new backers: Temasek (Singapore), Paradigm, Slow Ventures
• Twitter to label fake news tweets, first with corona virus misinformation
• Twitter acquires CrossInstall (interactive mobile ads, 70 employees)

Netherlands - telecoms & media

• Omzet Eurofiber groeit naar EUR 166 miljoen in 2019
• FOX over Ziggo-onderhandelingen: ACM wil zelfde voorwaarden voor alle providers
• T-Mobile claimt opnieuw status beste mobiele netwerk van Nederland
• T-Mobile Q1: 67.000 postpaid- en 14.000 breedbandklanten erbij, 3,3 procent omzetgroei
• Ziggo to raise prices 200701, average 3.4% (o/w 2.6% for inflation); basic cable rises to 19.95 EUR/mo (from 18.70)
• Online (= M7 = Canal+ = Vivendi) to raise prices 200701 (BB EUR 2; BB+TV EUR 2.50; 3P EUR 5) on inflation, data & content costs