"Deutsche Telekom reports mixed results for the fourth quarter: Revenue and adjusted net income weaker, but EBITDA AL slightly increased. Billion loss at the bottom line. Nonetheless, an optimistic outlook for the new year."
The Group's Revenues Fell by 1.4 Percent to 29.369 Billion Euros in the Fourth Quarter Due to Unfavorable Exchange Rates. However, Analysts Had Expected a Lower Figure of 28.491 Billion Euros. The Adjusted EBITDA AL Reached 10.009 Billion Euros, Representing a 0.5 Percent Increase, But Below the Consensus Forecast of 10.067 Billion Euros.
During the period from October to December, the group recorded a loss of 1.035 billion euros. Analysts, on the other hand, had expected a profit of 1.626 billion euros. In the previous year, Telecom had still generated a profit of over 1 billion euros. The company cited a valuation effect due to increased interest rates as the reason for the worse figures. Adjusted, the group's profit fell by 8.1 percent to 1.826 billion euros, which was also below the market consensus of 1.935 billion euros. The adjusted earnings per share decreased by 7.5 percent to 0.37 cents.
On a positive note, it should be highlighted that adjusted free cash flow doubled, reaching 4.352 billion euros. However, analysts had expected this figure to be 4.425 billion euros. For the current year, the telecom company plans to aim for an adjusted EBITDA AL of 42.9 billion euros, which represents growth of 6 percent. Adjusted free cash flow AL is expected to be 18.9 billion euros, a 16 percent increase compared to the previous year. The company's adjusted earnings per share are expected to exceed 1.75 euros.
In the full year 2023, Telekom reported a 2.1 percent decline in revenue to 112 billion euros. However, adjusted EBITDA AL increased by 0.7 percent to 40.5 billion euros, and net income after taxes and minorities climbed to 17.8 billion euros due to a special effect from the partial sale of its tower business. This corresponds to earnings per share of 3.57 euros compared to 1.61 euros the previous year. Free cash flow AL was able to increase by 40.7 percent to 16.141 billion euros, thus Telekom met its own repeatedly raised forecast.
In November, Telekom announced raising the dividend for the fiscal year 2023 to 0.77 euros per share, compared to 0.70 euros per share for 2022. The company also plans to repurchase shares worth up to 2 billion euros for 2024. Despite this news, Deutsche Telekom failed to convince investors at the stock exchange on Friday. The share price temporarily fell by 1.72 percent to 21.96 euros, reaching a low since the end of 2023.
Analysts are overall satisfied with Telekom's business figures, however some "blemishes" are criticized in the final quarter. For instance, service revenues in the German business were slightly weaker than expected. The group's free cash flow is also criticized by industry experts. The decline in real estate income at the corporate headquarters is cited as the reason for the missed operating results outside the USA.
Despite negative investor reactions, some analysts still see promise in Telekom stock. Tim Höttges, CEO of Deutsche Telekom, plans for a significant increase in operating profit and free cash flow this year. UBS analyst Polo Tang considers Telekom shares undervalued in this context and emphasizes that positive developments, such as the doubling of free cash flow by the end of 2024 due to the merger with Sprint, have not yet been fully taken into account.
