Telenor Shares Drop After Phone Carrier Cuts Profit Outlook

(Bloomberg) -- Telenor ASA shares fell the most in over a year after the biggest phone carrier in the Nordic region cut its full-year outlook as it struggles amid increased competition in key markets.

The Oslo-based company warned that revenue from phone customers and data would likely be little changed this year, after earlier anticipating a 2% gain. Earnings could also post a “low single digit” decline, compared to a previous forecast for a 1-3% gain.

“The reason why we are lowering the guidance in 2019 is because we now include Thailand and we see much tougher than expected competition in Malaysia,” Chief Executive Officer Sigve Brekke said in an interview in Oslo after presenting earnings.

Telenor is being pressured by slow growth in its mature markets in the Nordic region and competition at its businesses across Asia. The company is in the process of completing a takeover of Finland’s DNA Oyj, to further challenge its Swedish rival Telia Co AB. It’s also in talks with Axiata Group Bhd. to merge operations in Asia, combining their telecom and infrastructure assets to create a company with 300 million customers in nine countries.

Second quarter profit also disappointed. Earnings before interest, depreciation and amortization fell 2% to 11.1 billion kroner ($1.3 billion), missing an estimate of 11.3 billion kroner. Revenue was in line with estimates at 28 billion kroner.

The shares declined as much as 5.7%, the biggest intraday drop since June last year. They were down 4% to 174.95 kroner as of 1:42 p.m. in Oslo.

“We will continue to cut costs on a group level,” Brekke said. “Digitalization of core businesses implies layoffs in customer service and other parts of the business.”

Frank Maao, an analyst at DNB ASA, said that the new outlook constitutes an implicit lowering of Ebitda growth guidance to about minus 1%. The numbers were “soft,” driven by weakness in Pakistan and Norway, he said.

What Bloomberg Intelligence says...

Telenor’s muted 2Q growth and lowered full-year outlook provide some sobering context for the company’s plans for a comprehensive merger of its Asian operations with Axiata. The deal, if approved, will help unlock additional cost savings and investment efficiencies to protect cash flow from sustained top-line weakness.
-- Matthew Bloxham, senior industry analyst, to read research, click here

Brekke on Tuesday reiterated that the Axiata talks are expected to conclude in the third quarter. He also said that Telenor will reach a conclusion on a 5G supplier in Norway in the fourth quarter.

To contact the reporter on this story: Sveinung Sleire in Oslo at ssleire1@bloomberg.net

To contact the editors responsible for this story: Jonas Bergman at jbergman@bloomberg.net, Tasneem Hanfi Brögger

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