Telenet downgraded by Jefferies on Fluvius deal

Liberty Global-backed Belgian service provider Telenet faces a series of challenges that make a less attractive investment for now, according to a note by analysts at Jefferies, who downgraded the operator to hold.

Reflecting on Telenet’s announcement last week that it would fold its fibre infrastructure into a new JV with electricity and gas utility and broadband service provider Fluvius, Jefferies said that operating risks had “notably increased since October 2021” when the pair announced their initial non-binding agreement, resulting in Telenet “resetting” the dividend floor it had committed to at the time.

Those risks include the entry into the Belgian market of Romania’s Digi, which has a strategy of disrupting the mobile market to gain market share, likely following a similar playbook to that deployed in Spain and Italy.

Digi has, through its RCS&RDS Romanian cable subsidiary, teamed up with business-to-business telecom player Citymesh, owned by IT group Cegeka, to win mobile spectrum in Belgium’s 5G spectrum auction. The win means that the pair can now start to build out the country’s fourth 5G network in competition with Proximus, Telenet and Orange.

“The unfolding new mobile entrant project is likely to produce adverse headlines and eventually operating pressures,” said Jefferies.

Reflecting that the move to adjust the dividend policy “makes sense”, Jefferies went on the note that “there is no escaping the fact that this decision pulls out the rug from under the divi support while the ambitious fibre rollout (78% target coverage) suggests FCF will remain depressed well beyond the forecast horizon”.

Telenet has struck a binding agreement with utility provider and network operator Fluvius that will ultimately see Telenet evolve its HFC cable network infrastructure in a combined footprint to fibre-to-the-home technology.

Under the agreement, which has been long in the works, Telenet will have a 66.8% stake in a new NetCo with Fluvius owning the remaining 33.2%, and Telenet will fully consolidate NetCo in its financial accounts.

Jefferies said that while the move “makes strategic sense”, it remains the case that “the upside potentially created by the fibre rollout is far in the future“, and details of the agreement “remain uncertain”.