February 22, 2018 / 7:31 AM / a month ago

UPDATE 2-Telefonica sees higher sales as Spanish trends improve

* Telefonica core profit falls in line with forecasts

* Sees improved domestic performance, currency pressures weigh

* To pay 0.4 euro/shr dividend against 2018 earnings (Adds share price, details, comment)

By Andrés González

MADRID, Feb 22 (Reuters) - Spain’s Telefonica expects revenues to rise around 1 percent and profitability to increase this year, it said on Thursday, as it lifts domestic prices for high-end services.

Telefonica has been raising tariffs in its home market after investing billions in high-speed networks in an effort to combat low-cost rivals such as Spain’s Mas Movil.

The telecoms operator said adjusted core profit, excluding extraordinary costs, fell 5.2 percent in the fourth quarter to 4.2 billion euros, in line with Reuters forecasts.

Sales rose 5 percent on an organic basis to 13.2 billion euros, with flat revenues in Spain as strong service income was offset by lower wholesale and mobile phone terminal sales.

Telefonica shares were up 2.1 percent by 0932 GMT and were the second-top gainers on the Spanish blue-chip IBEX, which slipped 0.3 percent.

“Telefonica delivered a further improvement in revenue trends domestically in the quarter (and with solid KPIs) and the 2018 guidance implies slightly higher margins and lower capex than what consensus currently assumes,” Deutsche Bank said in an investor note.

The company said it aimed to increase its OIBDA margin by half a percentage point this year and would keep its 2018 dividend unchanged at 0.40 euros per share.

Separately, the analyst cheered an agreement with French peer Orange over wholesale access to Telefonica’s fibre optic network in parts of Spain where the Spanish operator is not obliged to give grid access to rivals.

Orange has also been raising prices at home in exchange for more services, and on Wednesday reported its first growth in annual domestic revenue since 2009.

Both Spain and France have been building out broadband fibre connections at a fast rate. Spain now has fibre penetration to households of 33.9 percent and France has 14.9 percent, compared with just 2.3 percent in Germany.

Telefonica - which also offers services in Britain, Germany and throughout Latin America - trades at 10.9 times this year’s earnings compared to main rivals Deutsche Telekom at 14.9 times and Orange at 13.3 times. ($1 = 0.8149 euros) (Additional reporting by Paul Day; Editing by Sonya Dowsett, Adrian Croft and Georgina Prodhan)

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