Swisscom Improves Outlook for 2023; Increasing FVE to CHF 440

Narrow-moat Swisscom’s revenue and EBITDA slightly beat consensus expectations for the full year. Sales have increased by 1.0% organically in the year, while EBITDA increased by 3.1% organically, although it dropped 1.6% on a reported basis due to one-offs and currency effects. Management provided an improved outlook for 2023, with an EBITDA (before leases) expectation of around CHF 4.6 billion to CHF 4.7 billion for 2023, compared with CHF 4.4 billion in 2022. Improvement in EBITDA will mainly come from cutting costs, as revenue is expected to remain flat in 2023. We are increasing our fair value estimate to CHF 440 from CHF 420 after incorporating this new guidance (we remain at the lower end, closer to CHF 4.6 billion) and slightly improving our medium-term margin forecasts. Although we see Swisscom as one of the highest-quality operators in the European telecommunication industry, with growing or stable dividends for almost 20 years, we see its shares as significantly overvalued now. Shares are trading at CHF 570 per share compared with our newly revised CHF 440 fair value estimate. A dividend of CHF 22 per share offers 3.8% yield at this point.