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Swiss market leader – Will the Swisscom share dive 30 percent? | News

Friday, August 18th, 2017 | Economy

The half-year results published yesterday by the telecommunication company Swisscom left hardly any (investor) wishes open. Both in terms of operating profit (EBITDA) and Reingewinn, the Swiss market leader clearly exceeded the average analyst estimates. The slight increase in the targets for this year's EBITDA was also good.
On the second glance, however, the petty corpse reveals weaknesses: it was only thanks to Fastweb that the company was able to beat the market expectations and raise the targets. The Italian subsidiary benefited from a one-time payment in connection with litigation.
The analyst, which is active for RBC Capital Markets (Royal Bank of Canada's investment banking arm), goes one step further. As he writes in an opinion, the conversion to the inONE combi offerings leads to false hopes. Even if it does not look like this at the moment, the market penetration of inONE is estimated at an estimated 5 per cent and the conversion to the latest generation of combi-packets is associated with price pressure, according to the analyst. In other words, he considers the market leader among the Swiss telecommunication groups to be in the "perfect storm".
It threatens an erosion of the income
This is why RBC Capital Markets is not hesitating for a long time and recommends selling the Swisscom share with "Underperform". Of the price target of just 340 CHF, a setback potential of 30 percent can be derived.
After the share has been able to move up from the low to 430 francs over the past few months, the share price has risen by a good 5 percent since the beginning of the year.

Swisscom share (red) in the 12-month comparison with the SMI (green) (Source: www.cash.ch)
The analyst observes the latest number of subscribers with concern. As the half-year result shows, the telecommunications group lost 12,000 subscribers in the second quarter in the mobile communications sector. In the fixed-line area even 89,000 were lost, which corresponds to an acceleration against the first quarter, the analyst adds. He leaves no doubt that these trends will sooner or later result in an earnings erosion.
One of the most frequently for sale SMI shares
This could also have negative implications for Swisscom's distribution policy in the long term, but the Swiss dividend yield of 4.6 per cent is the main attraction of the share.
The analyst working for RBC Capital Markets is, by the way, in good company with his sales recommendation for the dividend-strong share. According to the news agency AWP, eight out of 20 experts advise selling the stock. There are just four purchase recommendations. This makes Swisscom one of the most frequently recom- mended companies in the Swiss Market Index.
In addition to the fear of earnings erosion, the most frequently cited argument is above all the above-average European rating (EV / EBITDA of 7.3 vs. 6.6). At CHF 340, RBC Capital Markets's target is at the very bottom of the prognosis range.

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