Telefonica Beats Expectations but Management Cautious Given Macroeconomic Outlook; Maintaining FVE

Telefonica recorded a solid beat of consensus expectations in revenue, EBITDA and free cash flow. This was due to healthy performance in all geographies and currency effects acting as a strong tailwind, as Brazilian and Latin American currencies recently appreciated. Organic revenue growth was 3.2%, with the largest contributors being Germany and Brazil (5.2% and 4.6% growth respectively), and with Spain remaining stable at 0.9% organic growth. Group EBITDA grew less than revenue at 2.1%, hit by cost inflationary pressures. Despite the beat, management preferred to maintain its guidance of low-single-digit growth in sales and EBITDA, given current macroeconomic uncertainties. We maintain our EUR 4.90 fair value estimate and view shares as fairly valued.