Deutsche Telekom AG (DTE) NPV

Net revenue rose 1.7% to €28.0bn, ignoring the effect of exchange rates and portfolio changes. That was driven by overall growth in all regions, although sales of traditional IT infrastructure continue to fall.

Underlying cash profits (EBITDA AL) rose 2.4% to €9.9bn.

Full year guidance has been raised, with underlying cash profits expected to exceed €36.6bn, up slightly from €36.5bn.

The shares rose 2.5% following the announcement.

Our view

As a telecoms giant, Deutsche Telekom's biggest attraction is its stability. It's not an industry renowned for heady growth, but does get thanked by shareholders for its more reliable revenue streams. People will always need a phone network, and their office - at home or otherwise - needs internet.

Despite being a German company, Deutsche Telekom (DTE) makes most of its revenue and profits in the US through subsidiary T-Mobile, where it's recently upped its stake.

The combined group, following the acquisition of Sprint, should have both the bandwidth and scale needed to take on Verizon and AT&T in the US 5G market, but mergers always come with risks, especially one of this size. Either way any material benefits are unlikely to be realised before 2023.

It doesn't help that telecoms is a difficult industry to do well in.

Firstly, building and maintaining modern communications infrastructure, like towers, cables and data centres, costs a fortune. Add the ever-increasing payments to governments for spectrum rights, and the capital requirements can cost tens of billions of dollars a year. Spectrum investment varies considerably year to year and are long term investments, so telcos typically report free cash flow excluding these payments. But they're a real cost, and investors should keep a close eye on them.

Secondly, the industry lacks pricing power. Telcos compete primarily on price, which leads to pretty feeble margins and meagre returns on the massive amounts of capital employed. This is why companies bundle broadband and mobile data with entertainment services and other perks, and in DTE's case Magenta TV is a big part of the offering. The idea is to offer something meaningfully different that justifies higher pricing. Unfortunately, it's led to something akin to an arms race as each provider hunts for unique content to bolster its offer.

Debt has mounted as a result, especially since the Sprint merger, and efforts to keep it in hand recently led management to trim the dividend. We doubt investors will see much if any dividend growth until Sprint has been properly embedded, and that's conditional on the integration going smoothly.

First quarter results (figures are organic)

Revenue in the United States rose 1.9% to €18bn, with progress in services partially offset by lower equipment sales. The group also benefitted from net-customer additions, largely as a result of high-speed internet customers. Underlying cash profits (EBITDA AL) rose 0.7% to €6.2bn, reflecting the higher number of more lucrative service sales.

Total revenue in Germany rose 0.9% €6bn, including increased revenue in the fixed-network core business and consumer broadband sales. This offset weaker trading in Business Customers and Wholesale. Underlying cash profits rose 3.6% to €2.4bn.

Europe revenue rose 4.2% to €2.7bn, reflecting strong mobile business performance, including higher margin mobile service sales. Underlying cash profits rose 6.9% to €976m.

Revenue in System Solutions and Group Development fell 0.8% and rose 5.6% respectively.

Total group cash capital expenditure, excluding Spectrum investments rose to €4.7bn from €4.3bn. Underlying free cash flow rose to €3.8bn from €2.6bn. Net debt rose €3.8bn to €135.9bn.

The sale of T-Mobile Netherlands has completed, resulting in cash proceeds of €3.6bn. Part of the proceeds have gone towards increasing the group's stake in T-Mobile US.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

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