Brussels: Telenet and the best neighbor


A star in a lackluster Bel20 was Telenet, which receives fan mail from London. Barclays sees opportunities in the eternal VOO file, but, more intriguingly, also with the Dutch brother Ziggo.

Investors seem to have taken their breath away with Monday’s substantial rebound. The Bel20

dropped 0.8 percent on Tuesday and closed at 3,234 points.

The star is a stock that is experiencing a scratchy 2020, with a loss of 18 percent since New Year: Telenet

. The telecom and media group translates welcome fan mail from London in a modest sprint from 1 percent to 32.76 euros. Barclays puts the stock on the buy list and raises the price target to 40 euros.

‘We think the unrest about (too) great competition in infrastructure is exaggerated’, it sounds. This unrest has existed since Proximus CEO Guillaume Boutin announced at the end of March that it would trim the dividend in order to accelerate the expensive roll-out of the fiber optic network. The goal: to catch up in network quality with arch-rival Telenet, in a more coma-looking and data-consuming Belgium than ever before. Investors have since feared a cash flow wrecking infrastructure race between the two telecommers.

Analyst Simon Coles applauds investors: ‘We are more confident that Telenet will reduce the impact on free cash flow (and thus the dividend, ed.) by undertaking the upgrading of its own network together with Fluvius. ‘

A fully debt-financed acquisition of VOO would increase Telenet’s earnings per share by 10 to 20 percent in one go.

Simon coles


In the longer term, the Barclays analyst sees a lot of growth opportunities for Telenet in the neighbors. In Wallonia, with the sales file of the cable company VOO, which is gradually dragging on. ‘VOO has margins of around 30 percent, compared to more than 50 percent for Telenet. A fully debt-funded acquisition would increase earnings per share by 10 to 20 percent in one go.

But while the VOO saga sees investors lose interest in the umpteenth year, Coles sees potentially intriguing new binge material from neighbors. This time in the north instead of the south. The Dutch cable company VodafoneZiggo, 50 percent owned by Telenet parent Liberty and 50 percent by the British mobile giant Vodafone. Coles notes that the joint venture will be four years old in January. “In that case, each shareholder may, in principle, cash out his share, with a pre-emptive right for the other shareholder.”

In a scenario where Telenet becomes a Benelux champion, we consider 1.4 to 1.7 billion free cash flow annually possible, compared to 400 million now

Simon coles


The analyst sees two realistic scenarios. One: Liberty – which has a net cash balance of USD 5 billion – buys out both the minority shareholders of Telenet and Vodafone and creates a Benelux champion under its own name. Two: Telenet buys out Vodafone from Ziggo, financed with debt and a modest capital round. Liberty will then contribute its 50 percent to Telenet in exchange for shares. Coles: ‘In a scenario where Telenet becomes a Benelux champion, we consider 1.4 to 1.7 billion free cash flow annually possible, compared to 400 million now.’

“A boost.” KBC Securities calls this the new five-year contract with Lockheed Martin that Solvay

closes for the supply of materials for the fighter plane F-35. But no more than that. ‘Good news, but it doesn’t change the fundamental picture for the composites department. It is having a hard time because of the significantly lower production in civil aviation and has forced Solvay to implement a savings program that will cut costs 60 million annually. ‘

KBC Securities analyst Wim Hoste maintains his ‘additional buy’ advice, with a target price of 90 euros. He estimates that the F-35 – each unit worth over $ 1 million of Solvay products – accounted for $ 134 million in sales last year, or nearly a tenth of the industry. Investors react hypothermic: the chemical group crumbled 1.1 percent to 74.18 euros.

ING is returning to the decision of the imaging group Agfa-Gevaert

– at the end of August – to put 350 million euros in her pension fund, but keep the 1 billion in cash from the sale of the majority of the IT branch in house for the rest.

ING analysts Maxime Stranart and David Vagman are satisfied with the decision, which reduces the risks on the balance sheet. But they immediately warn investors not to set the bar too high. “We maintain that investors should not expect a significant payout anytime soon, given the poor free cash flow generated by the remaining activities.”

Even if Agfa puts the cash to work in the long term through a robust share buyback, this does not necessarily lead to significant value creation on the stock exchange. Based on the profit forecast for 2021, Agfa is trading at a premium of 40 percent on the industry. If Agfa were to spend 120 million at the current price to buy one fifth of the shares, that would increase earnings per share by 25 percent. Even so, Agfa is trading at 11.7 times its expected profit, an 11 percent premium on the sector. In other words: the rate already takes such a purchase into account. ‘

Ergo: ING maintains the ‘hold’ advice and target price of 4 euros. Agfa closed almost stable at EUR 3.525.

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