Spain's Telefonica posted a better-than-expected 66 percent rise in first-half net profit on Monday, with a perky performance in its home business, allowing it to raise its full-year earnings forecasts.
Telefonica raised full-year group targets to 8-10 percent growth in revenues, a 10-13 percent rise in core earnings (OIBDA) and a 19-23 percent rise in operating profit. Net profit came in at 3.83 billion euros ($5.23 billion), 5 percent above expectations in a Reuters poll.
"They have also provisioned for the (European Union 159 million euro anti-competition) fine, and they've cut debt, which in this (market) climate is very important," said Luis Padron, analyst at Fortis in Madrid. Equity markets have been beset by fears of higher interest rates hitting debt-laden companies. After several years of purchases, Telefonica's net debt stands at 49.22 billion euros, down 10.4 percent year-on-year.
Shares opened higher but later fell back to end 0.47 percent down at 16.93 euros, while the European telecoms index was down just over 1 percent. "I particularly liked them raising targets in Spain, which shows they are expecting a very good second half," said German Garcia, analyst at Ahorro Corporacion Financiera brokerage. "But for that to be seen in the share price, we may have to wait a while, as the market is very unsettled."
Telefonica also said German business conditions continued to be challenging, and though it maintained overall 02 Europe targets for 2007, German revenue growth is now seen at 7-10 percent versus 14-17 percent previously.
An analyst at a US investment bank also hailed the strong performance and agreed brokers would upgrade. "The thing is with Telefonica, it rarely reacts to results as they're nearly always better than expected, and people anticipate that," he said.
Executives on a conference call with analysts said the company was still in discussions with partner Portugal Telecom regarding their Brazilian joint venture Vivo, but there was nothing new to report.
Telefonica's chairman said earlier this month that the group had offered partner PT more than 3 billion euros to buy control of Vivo, and some analysts say any news on that will be the catalyst for the share price.
PT has until the start of August to respond. Group performance was backed by better-than-expected growth in its domestic broadband and mobile businesses, as well as one-off proceeds from the sale of emergency radio unit Airwave, and a 11.3 percent rise in customers to 212.6 million.
Growth in the customer base was mainly powered by new broadband internet connections, up 35 percent, and mobile phone business overall which is still expanding at 15.1 percent backed by the group's booming business in emerging Latin America.
Its new pay-TV business is also growing strongly although from a lower base, up 64.5 percent to 1.3 million clients. "These superb results are the consequence of solid organic growth ... the diversification by geographies and businesses, the efficient cost structure and the execution of synergies through integrated management," Telefonica said in a statement.
Despite European markets which unit O2 separately described as "highly competitive", its European business added 534,000 mobile customers in the second quarter. First half group operating income before depreciation and amortisation (OIBDA) rose 21.9 percent to 11.27 billion euros on a 10.6 percent rise in revenues to 27.83 billion euros.
A Reuters poll of 10 analysts expected Europe's number two telecoms group to post a 57.5 percent increase in first half profit to 3.63 billion euros on revenues of 27.68 billion euros and core earnings (OIBDA) of 11.31 billion euros. Former monopoly Telefonica's domestic business continued to be the main contributor to group revenues.
Second quarter wireless service revenues in Spain rose 5.5 percent, which compares with rival Vodafone's impressive turn on Telefonica's home patch with a 12.5 percent increase in second quarter service revenues announced last week.
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