Deutsche Telekom Meets Its Medium-Term Targets

Deutsche Telekom DTE followed its habit of underpromising and overdelivering. It closed 2022 by beating its own guidance, which had already been raised several times during the year. Management reviewed its track record since 2018, highlighting that most targets have been achieved or surpassed. Since 2018, group service revenue has grown at an annual rate between 1.6% and 3.7% organically with adjusted EBITDA after leases growing in the 4.2% to 7.9% range annually. When excluding the U.S., Deutsche Telekom’s growth engine, adjusted EBTIDAaL has grown at a 2.4% to 4.8% rate annually, a performance that pleases us. Deutsche Telekom shares have had a very strong performance in the past year, beating indexes like the S&P 500 and STOXX 600, and are currently trading at around EUR 21 per share. We maintain our EUR 23 fair value estimate and remind investors that Deutsche Telekom has a narrow moat rating and an Exemplary Morningstar Capital Allocation Rating.

For 2023, Deutsche Telekom expects adjusted EBITDAaL of almost EUR 41 billion and free cash flow (to the company) of almost EUR 16 billion compared with EUR 11.2 billion in 2022, as capital expenditure in the U.S. will drop significantly. These estimates could be revised upward as the year progresses because management tends to be conservative with its guidance.

In the fourth quarter, T-Mobile U.S. grew revenue by 3.7% organically, adding almost 1 million postpaid mobile customers in the quarter. U.S. adjusted EBITDAaL was up 4.3%. In Germany, sales were up 1.1% organically, with EBITDAaL growing 2.9%. German mobile services revenue grew a healthy 3.5%, highlighting the health of the German market. However, this was lower than the 7.0% organic growth reported by Telefonica Deutschland, which has been gaining some market share recently.