Small Spanish Telco Becomes Investor Darling as Rivals Droop

(Bloomberg) -- Europe’s best-performing telecom stock this year has nowhere near the name recognition of competitors such as Telefonica SA, Orange SA or Vodafone Group Plc.

Yet Masmovil Ibercom SA, based in San Sebastian, Spain, has outdone them all, earning its place as the country’s fourth national carrier through acquisitions, debt, investments in fiber-optic broadband and aggressive pricing. The shares have more than doubled this year, compared with a 3.4 percent decline for the 21-member Stoxx Telecom Index. 

Investors flocking to a small carrier with barely no broadband of its own in a country that already boasts Europe’s largest fiber network may seems counter-intuitive. But Masmovil is attracting interest by pitching itself as a low-cost provider in a country where the three big players appear more focused on seeking high-spending consumers.

The carrier’s growth is driven by a straightforward marketing strategy: a no-frills offering that doesn’t include pricier content such as soccer combined with mobile and fiber packages that are among the cheapest in the market. Masmovil also has an aggressive fiber deployment strategy, centered around the construction of a broadband network mainly in small towns and rural areas overlooked by the country’s largest carriers. A wholesale agreement with Orange helps it cover larger, urban areas.

Though rivals are beginning to counter Masmovil’s prices with their own low-cost offerings, most analysts aren’t concerned. Even after this year’s 127 percent rally, the stock has seven buy recommendations, one neutral and no sells, according to data compiled by Bloomberg.

Barclays downgraded its stock recommendation last month, citing concerns over the increasing competition at the lower end of the market, Masmovil’s main focus. Masmovil, which has a market value to 1.2 billion euros ($1.4 billion), is scheduled to report first-half earnings on Sept. 13.

Growth Path

Spearheaded by Chief Executive Officer Meinrad Spenger, a 42-year-old Austrian lawyer who founded it in 2006, Masmovil has sought to profile itself as a smaller, nimbler alternative to larger rivals such as former national monopoly Telefonica.

Masmovil is seeking to fill the gap left by Jazztel Plc, the upstart fiber provider that was snapped up in 2015 by Orange, when the former French monopoly sought to bolster its offerings. Jazztel’s takeover didn’t only open a niche for Masmovil, it also helped it obtain a large batch of fiber connections which Orange divested as part of antitrust requirements.

Buying the fiber from Orange in 2015 helped Masmovil gain momentum in its journey from being a virtual operator to a fully-fledged internet and phone provider. The next big step came in 2016 when, backed by funds and a construction company, it bought Telia AB’s Spanish mobile assets, making it the country’s fourth mobile operator.

In July, as interest in Masmovil’s shares continued to grow, the company became the first to have ever moved from Spain’s alternative stock market to the main list. The stock gained 1.6 percent on Monday to 61.49 euros.

To contact the reporter on this story: Rodrigo Orihuela in Madrid at rorihuela@bloomberg.net.

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Ville Heiskanen, Kim Robert McLaughlin