Societe Generale sees 'clear improvement' in financials; doesn't expect fresh wave of M&As.
Europe's major telcos have turned a corner, financially speaking, driven in part by the ongoing transformation of pure-play operators into integrated service providers.
"They're not all necessarily growing, but maybe they're not declining so much either," said Guiseppe Monarchi, co-head of Credit Suisse's EMEA TMT group, during a panel session at Total Telecom Congress in London on Tuesday.
Indeed, a quick look at the big European operators' most recent financial results paints a promising picture.
Telecom Italia upgraded its full-year outlook on improving performance in its home market; Telefonica reported growth in revenue and earnings for the first six months of 2016; Orange confirmed its full-year guidance despite posting flat second-quarter revenue and earnings growth; Vodafone's fiscal first quarter service revenue rose 2.2% on last year; and Deutsche Telekom reported an 8.6% rise in adjusted EBITDA, albeit thanks mainly to the performance of T-Mobile US.
"The telco sector is proving fairly resilient," agreed Benoit Tanguy, global co-head of TMT finance at Societe Generale Corporate and Investment Banking.
"There is a clear improvement in the financials," he continued. "It is a sector that can finance capital expenditure and acquisitions."
Not that there are many acquisitions to finance.
Most mobile-to-mobile consolidation has already taken place, and Europe has seen its first wave of mobile-to-fixed consolidation, driven by the likes of Vodafone, Liberty Global, and Altice, among others, Monarchi said.
"The regulatory hurdles [to mergers and acquisitions] are getting higher," he continued, adding that in order to pass muster with the European Commission's competition commissioner Margrethe Vestager, the case for in-market consolidation has to be much stronger.
Meanwhile, cross-border M&A attracts scepticism from the investment community.
"Investors are not sure that the synergies are strong enough to justify such a transaction," Monarchi said.
Going forward, Tanguy expects to see renewed attempts by some Central and Eastern European governments, such as Serbia and Slovenia, to privatise their national incumbents, as well as some "smallish type" of in-market consolidation.