May 14, 2020 / 5:17 AM / 14 days ago

Deutsche Telekom, resilient against coronavirus, confirms outlook, dividend

(Reuters) - Deutsche Telekom (DTEGn.DE) reported strong quarterly results and confirmed its outlook and dividend on Thursday, as gains in call and data volumes during the coronavirus pandemic impressed investors.

FILE PHOTO: Logo of German telecommunications giant Deutsche Telekom AG and GSM antennas are seen atop of the headquarters of Deutsche Telekom in Bonn, Germany, February 19, 2019. REUTERS/Wolfgang Rattay/File Photo

Europe’s largest telco reported double-digit profit growth in the first quarter, echoing competitor Vodafone’s (VOD.L) solid annual results this week even as Telefonica (TEF.MC) and BT (BT.L) have struggled.

“Since coronavirus, we have become very used to hearing bad news. Today, we have positive news to report again. Our first quarter was strong - very strong,” Chief Executive Tim Hoettges told reporters on a conference call.

Deutsche Telekom reported a 10.2% increase in first-quarter core profit to 6.54 billion euros ($7.1 billion), beating the median forecast of 6.3 billion euros in its own survey of analysts.

Profit growth outstripped a 2.3% rise in revenue as margins were lifted by higher call and data volumes as well as lower customer churn, offsetting the impact of store closures, lower roaming revenues and delays to IT projects.

Hoettges reiterated a forecast for adjusted earnings before interest, taxation, depreciation and amortization after leases (EBITDA AL) - management’s preferred measure of profitability - of 25.5 billion euros this year.

Analysts described Deutsche Telekom’s performance as solid across the board. “The full-year outlook is reiterated on all counts. This is a display of strength,” Jefferies analyst Ulrich Rathe said in a research note.

Shares gained 0.8%, putting Deutsche Telekom among the leaders in Germany's 30-share DAX index .GDAXI, which slipped 1.7% in morning trading.

DIVIDEND PLAY

Hoettges confirmed that management would propose a dividend of 0.60 euros to its annual shareholders meeting, which has been delayed to June 19 and will be held online.

“Because the business performed well in the last year and continues to do so, we are not calling the dividend into question,” said Hoettges, adding that the payout was comfortably covered by earnings.

Vodafone also held its dividend for the year to March 31, bucking a trend in the sector to slash payouts to conserve cash to fund investments in 5G network upgrades.

Deutsche Telekom’s outlook does not yet include Sprint, whose $23 billion takeover by U.S. unit T-Mobile (TMUS.O) was completed on April 1. It will issue fresh guidance including Sprint with its second-quarter results.

On an organic basis, stripping out the impact of one-off factors and currency fluctuations, EBITDA AL rose by 9% in the first quarter. T-Mobile led the way with a profit gain of 14.5%, but all of the group’s divisions were ahead.

Free cash flow after leases dipped by 17% as Deutsche Telekom terminated some factoring agreements. Still, it stood by its forecast for this metric to reach 8 billion euros this year.

Reporting by Douglas Busvine; Editing by Michelle Martin and Jan Harvey

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