EFTA01385534.pdf

> TMT Deutsche Bank KPN — Keval Khiroya, BUY, close €2.9, €4.2 tgt, 45% upside ■ Dutch wireless market solid. The Dutch market has shown increasing Price/month for iPhone contracts, total value split over 24 months signs of rationality over the past two years and KPN performs well within this, with the company highlighting low mid-single digit underlying service 75 AVG/m (RHS) T2 5GB (4GB until Feb 17) 300 revenue growth in the most recent quarter. 70 KPN 10GB (5GB until June 17) KPN 20GB cony (10GB until June 17) 250 • Wireless consolidation helpful. Most of the price competition has been 65 1 200 contained to the low-end, where Tele2 and T-Mobile NL have been active. 60 1 The two operators recently announced they would consolidate (announced 150 55 -1 15-Dec) and this should further help trends at the low-end. 100 50 • Cost cutting progress on track. KPN has guided to continued opex so 45 reduction through to 2019 and a reduction in capital intensity, given a high 57 57 57 56 56 58 59 58 57 58 56 55 55 55 56 57 63 63 starting point (19% domestic capex/sales). This should further help 40 0 Q- -1 4/ +0k i• continued FCF growth (2017 — 20e EFCF CAGR of >15%). Source: Deutsche Bank. Company data. Phone 8 256GB from Sept-17. iPhone 7 128GB from Sept-16. Phone 6.5 64GB until Sep1-16 ■ B2B revenue trends are improving. This has been a major area of concern, but Q3's -4.9% decline was better than the prior quarter (-5.9%) and the 2016 decline of -7.3%. A potential return to stable revenues over KPN EFCF (pre associate dividends), EURm the medium term would be a key positive. • Consumer fixed remains solid. KPN's main fixed competitor, Ziggo, 900 855 remains rational following the integration with Vodafone. Both operators 800 727 683 have put through price rises in return for higher speeds. KPN delivered 700 3.2% consumer fixed revenue growth in the most recent quarter. 600 552 500 • Valuation remains attractive: KPN trades in-line with the sector on an 400 EFCF yield of 6.5%, but with low risk and premium EFCF growth. Dividend 300 yield is 5.4% vs peers 5.0%. 200 ■ Catalysts: Q4 results 31-Jan-18, progress of Tele2-TMNL deal. 100 0 Related DB Research: Tele2 and T-Mobile NL consolidation a positive (Khiroya) 2015 2016 2017 '018 Source: Deutsche Bank eels. Company data Deutsche Bank Research* Euopean Equity Focus —.Jemmy 2018 CONFIDENTIAL - PURSUANT TO FED. R. GRIM. P. 6(e) DB-SDNY-0086820 CONFIDENTIAL SDNY_GM_00233004 EFTA01385534