November 26, 2024 09:55 GMT
COMMUNICATIONS: KPN Curve Performs Well; Still Looks Wide Given Rating Upside
COMMUNICATIONS
KPN: Baa3[P]/BBB/BBB Telefonica: Baa3/BBB-/BBB
- KPN spreads has been performing well against those of low-rated peer Telefonica though still look wide given near term rating upside with KPN on positive outlook at Moody’s since May. KPN/Telefonica 2031 lines are broadly flat to each other as of yesterday’s close.
- Moody’s are looking for solid op performance, positive revenue growth, sustained high margins, and good FCF generation for the upgrade with Moody’s-adj leverage <2.75x (Q3 reported leverage of 2.5x against a target of <2.5x with the target corresponding to Moody’s-adj ratio of <3x).
- Since the Moody’s decision on 31 May, the consensus outlook has improved slightly for KPN’s revenue, EBITDA margin and FCF outlook. This hasn’t translated into a faster implied expected deleveraging path though the market still sees KPN hitting a reported leverage ratio of 2.22x this year which would position them well for the upgrade next year.
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